German machine and automotive parts manufacturer Schaeffler announced plans to lay off 4,700 employees across Europe, with Germany bearing the brunt, as it faces mounting pressures in a challenging automotive market.
Schaeffler’s decision comes after a nearly 45% drop in its third-quarter operating profit, underscoring difficulties faced by the European automotive sector amid rising production costs, increasing global competition, and ongoing transitions to electric vehicles.
Why is Schaeffler cutting jobs?
Schaeffler’s decision stems from a challenging environment in the European automotive industry, which has been hit by escalating production costs, supply chain issues, and increased pressure to transition to electric vehicles (EVs).
The company noted that the layoffs align with a broader transformation plan aimed at streamlining operations and adapting to market demands.
The automotive supplier, which merged with electric powertrain specialist Vitesco, has increased its workforce to 120,000.
The merger also prompted Schaeffler to reevaluate its operational structure, leading to planned administrative reductions to drive efficiency.
How much will Schaeffler save from this?
Schaeffler estimates that the layoffs will result in savings of approximately €290 million annually by the end of 2029, though the restructuring will initially cost €580 million.
These savings are critical as the company seeks to strengthen its competitiveness and address falling demand in key markets, especially in Europe and China.
Germany is expected to see the most significant impact, with 2,800 job cuts planned across ten sites.
The remaining reductions will span various European locations, including two site closures, which have yet to be specified.
Schaeffler announced that 1,000 of these positions will be eliminated through natural attrition or displacements, bringing the net layoffs to 3,700 roles—representing about 3.1% of its workforce.
Schaeffler’s earnings before interest, taxes, and special items dropped to €187 million for the July-September period, missing the average analyst forecast of €209.4 million.
The company’s bleak financial results mirror those of other automotive suppliers, including Sweden’s SKF and France’s Valeo, which also attributed weak European and Chinese demand to their underperformance.
The European automotive industry is navigating a complex landscape marked by high labor and energy costs, especially in Germany, where these factors are among the highest in Europe.
Volkswagen, Europe’s top carmaker, is even considering closing some German plants as it negotiates a proposed 10% wage reduction with unions.
Schaeffler’s workforce reduction reflects a broader trend within the industry as companies balance cost-cutting measures with the need for long-term innovation to meet changing market demands.
The shift towards EVs and the need for efficient, low-emission production are driving these transformations, putting pressure on traditional manufacturers and suppliers to streamline operations.
The restructuring follows Schaeffler’s strategic merger with Vitesco, which was intended to boost its capabilities in electric mobility.
As the company grapples with declining demand and profitability, the layoffs form part of an aggressive strategy to secure a competitive edge and adapt to an evolving market.
By reducing administrative roles and consolidating resources, Schaeffler aims to enhance its resilience and meet the demands of the fast-changing automotive landscape.
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