Two U.S. plants are slated to close in Virginia and North Carolina, resulting in nearly 1,400 job cuts.
The world’s second-biggest auto-parts maker will invest about $1.2 billion during the period through 2029 to achieve an annual reduction of gross costs of $547 million starting in 2023, according to a statement Wednesday. The company employs about 244,000 people in 60 countries, including 2,075 in Southeast Michigan. Continental Automotive Systems U.S. Inc., its North American automotive headquarters, is in Auburn Hills
The supplier also is in the process of dividing itself into three distinct business units: Rubber Technologies, Automotive Technologies and Powertrain, which will called Vitesco. The powertrain unit will either be spun off or be separately listed in a public stock offering, depending on whether economic conditions are favorable for a listing.
In the U.S., Continental said it plans to close a plant in Newport News, Va., that makes hydraulic components for gasoline engines. The operation, which employs about 740 people, is expected to close in 2024. Continental also plans to close a hydraulic brake plant in Henderson, N.C., which employs 650 people. “The plant has been unable to acquire new customer projects in recent years,” the statement said.
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 also plans to close a truck tire site in Malaysia. Production of hydraulic parts will be phased out at two plants in Germany and one in Italy. CEO 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.