Continental AG mapped out a sweeping restructuring plan stretching over the next decade and affecting as many as 20,000 jobs worldwide, marking the German manufacturer’s latest effort to restore profits while navigating sluggish vehicle production in key markets and an industry shift to electric cars.
The world’s second-biggest auto-parts maker will invest about 1.1 billion euros ($1.2 billion) during the period through 2029 to achieve an annual reduction of gross costs of 500 million euros starting in 2023, according to a statement Wednesday. The company employs about 244,000 people in 60 countries.
Continental outlined the plan for a deeper revamp last month, including potential job cuts and factory closures. It also decided to stop growing its hydraulic components business, which makes injectors and pumps for gasoline and diesel engines and is reviewing operations that make parts for exhaust-gas treatment and fuel-supply systems.
The changes highlight the urgency for car-parts makers to adapt operations to a rapidly transforming industry, where software plays an increasingly important role. Stricter emission regulations in China and Europe are also forcing vehicle manufacturers to sell more electric cars, at a time of weakening global demand after a decade of almost constant growth.
Continental plans to close two U.S. factories that make hydraulic components, -- one in Virginia and the other in North Carolina -- as well as a truck tire site in Malaysia. Production of hydraulic parts will also be phased out at two plants in Germany and one in Italy. Chief Executive Officer Elmar Degenhart said the company will use attrition to reduce headcount and offer alternative jobs in other sites if possible. “We can not rule out” forced cuts as a “measure of last resort,” he said.
While Continental has sufficient scale and a strong presence in the growing electronics components business, many smaller peers specialized in traditional combustion-engine technology are getting squeezed. The sector has been hit by a barrage of profit warnings in recent months.
Despite cutting back in some areas Degenhart plans to expand operations with strong growth prospects like driver-assistance systems and autonomous vehicles, mobility services and the high-margin tire business. Continental plans to become one of the world’s top three tire makers and intends to grow sales of replacement parts, conveyor belts and hoses to agricultural equipment makers, mining and construction companies to reduce dependence on carmaking customers.
Signals for suppliers from major auto manufacturers indicate a persistent market weakness. Volkswagen AG reduced production plans for this year by about 450,000 cars to adapt to cooling demand and avoid the build up of inventory. BMW AG also said it would align production plans with demand.
“With our organizational realignment, our solid balance sheet and our strategy 2030 we are well prepared for the upcoming challenges,” Degenhart said. Implementation of the overhaul “will push us to our limit and probably beyond,” he said.