HANOVER, Germany—From OEMs to suppliers, COVID-19 has left the automotive industry reeling. Continental A.G. is no different.
The Hanover-based automotive supplier has just begun to see the financial effects of the global pandemic, and is bracing for a more robust impact in the coming months by taking steps to cut costs now.
"We will feel the financial impact of the coronavirus pandemic even more strongly in the second quarter," Continental CEO Elmar Degenhart said in a statement. "Usually, we generate (75 percent) of our sales in Europe and North America. But both regions have been hit hard by the effects of the coronavirus pandemic since the end of March, while automotive production in China is stabilizing again."
Earnings (EBITDA) for the first three months of the year fell 21 percent to around $1.2 billion, on 11 percent lower sales at $10.5 billion, primarily due to the COVID-19 pandemic in China. There, Continental was forced to suspend production along with a number of other auto makers and suppliers.
This resulted in a 50 percent decline in output of passenger and light truck vehicles throughout the country, compared to 2019, Continental said.
Europe and North America also saw a significant decline in vehicle production, down 20 percent and 10 percent, respectively, according to a company news release. In Mid-March, Continental halted production at 40 percent of its 249 locations worldwide, though these closures mainly came in North America, Russia and India. Only one German location remains closed for now.
"In absolute figures, the global decline corresponds to about 5.7 million fewer vehicles produced in comparison to the previous year," Continental said in the release.
In April, the company took steps to adjust to weakening automotive demand and balance its finances accordingly. At the time, it disclosed plans to reduce costs by shortening the workweek for its employees. Continental said this impacts about 60 percent of its 240,000 employees.
Further, Continental said it had 239,649 employees at the close of the first quarter, about 1,800 fewer than it had at the start of the quarter. The company did not specify a reason for the reduction.
In Germany, the shortened workweek resulted in many employees working six less days in April than they traditionally would have. Continental said in a May 7 news release the shortened workweek plan will continue through May.
Meanwhile, the Continental Executive Board also extended its 10 percent reduction in fixed salary. Originally intended as one-month cut, the 10 percent pay reduction will continue through July.
Additional cost-saving measures are being instituted this year, particularly on the capital expenditure side. Continental is postponing any projects and investments not deemed urgent, and is aiming to reduce its investments by 20 percent.
"The economic environment has again deteriorated substantially since the beginning of March as a result of the coronavirus pandemic, which has meant that we have intensified cost cutting even further," Chief Financial Officer Wolfgang Schaefer said in a statement. "We are scrutinizing the necessity of all expenditures and investments at present and looking for savings that will prove effective in the short term."