Recaro-triggered Ineos stop exposes fragility of supply chain

The greatest hope still rests with its original supplier. “Recaro is not off the table for us. It would be the best alternative," Steyer told the Saarbruecker Zeitung. 

The overall Ineos Group head – billionaire Sir Jim Ratcliffe - can afford to buy Recaro outright, but a more practical option might be to team up with other Recaro customers to organise a bailout.

Car makers including JLR were forced to get financially creative back in 2021 to rescue Coventry-based Arlington Automotive Group – a maker of thermostats and other parts. JLR along with other customers approached a former manager to revive the company with the help of aluminium parts specialist Evtec, creating a new division called Evtec Automotive.

Meanwhile last year, General Motors, Stellantis and Yangfeng Interior systems came up with $15 million to prop up US-based automotive die-cut parts maker Unique Fabricating after it ran into financial problems. Eventually, Stellantis and two tier-one suppliers took over the company’s tooling, thereby avoiding expensive production stops.

Car companies have been forced to revaluate their often fiendishly complicated supply chains to try to avoid the consequences of natural disasters, such as tsunamis in Japan and more recently shortages of critical parts such as semiconductors.

The chip crisis was less financially critical in that it affected all car makers, allowing them to push up prices of the reduced numbers of cars they could make. 

Typically, however, a parts shortage affects one or two brands, allowing their competitors to surge ahead. Recent examples include Audi’s inability to build V6- and V8-engined models earlier this year, reportedly due to problems with the Vitesco-supplied 48V mild-hybrid starter-generator. Such is the profitability of those bigger-engined models that the loss of sales resulted in Audi’s normally healthy profit margins falling to just 1.1% in the first quarter of the year. They have since rebounded after a second supplier was engaged.

Meanwhile, JLR and Porsche have both warned of reduced output in the second half of this year after aluminium production from a key supplier was hit by catastrophic flooding in Switzerland  in early July.

Traditional car manufacturers have preferred in recent years to outsource much of the car’s content to suppliers - typically over three-quarters of the total parts - because specialist parts makers can more economically build and innovate in their chosen area. 

However, the transition to electric has triggered a shift to bring more parts manufacturing in-house as car makers look to gain an edge and improve on components that might not be optimised for cars.

US electric vehicle start-up Rivian, for example, builds its own Enduro drive unit, which combines the gearbox, power inverter and motor in one. Even that is not immune, though, given the tiers of suppliers still needed. Currently, a supplier issue is causing a shortage of components – “a situation that continues to fuel internal debate between outsourcing and vertical integration,” according to Jefferies analyst Philippe Houchois, who recently visited the manufacturer.

In 2021, Mercedes-Benz bought out UK electric motor specialist Yasa, preferring to take control of the direction of a company that was innovative but also in the early stages of commercialisation, which is typically seen as bringing risks to its customers. How much risk these early-phase suppliers pose was illustrated by the failure of another innovative British electric motor maker – Saietta – in March.

One of former Ferrari CEO Amadeo Felisa’s first jobs at Aston Martin was to properly dig into the supply chain to make it more shock-resistant. As a result, he cut around 90 suppliers of the original 300. “A lot of them were very small – too small to make strategy or to follow us on efficiency and quality,” he said last year. His replacement, Adrian Hallmark, has spoken in his former role as head of Bentley about the need to bring in more suppliers to the UK with the capability and strength to become partners to the UK’s specialist, luxury-focused automotive industry.

Another option open to Ineos is to carry on building cars and store them at the Hambach site until the seats problem is sorted and they can be fitted retroactively. However, that currently doesn’t seem to be the plan.