The Brazilian subsidiary of a German automotive supplier in Sao Paulo (20 million euros turnover, 120 employees) had run into financial difficulties in 2015. The owner of the parent company, a private equity investor, and the group management demanded that measures to improve results be defined promptly and that success be demonstrated in the short term. The current interim manager was appointed as managing director (in a permanent position) to achieve these goals.
Economic crisis and production slump cause considerable losses
In 2015, Brazil was in the midst of an economic crisis. Automotive production fell by 35 percent. The Brazilian site produced clutch hydraulics and was therefore directly affected by the decline in volume - and made a loss. This was exacerbated by the so-called "Custo Brasil". These complicated tax and bureaucratic conditions represent an additional challenge for company management in Brazil.
Staff reductions and cuts in operating costs bring initial improvements
The interim manager formed a cross-divisional management team from the department heads. Freed from day-to-day business, the team developed a comprehensive action plan in workshops and after intensive discussions. This included renegotiating the factory rent and negotiating with suppliers. In the HR area, the interim manager worked with the HR manager to implement a prompt reduction in staff and also negotiated flexible working hours with the local works council.
The company achieved a prompt improvement in results by reducing staff and consistently cutting operating costs. The short-term successes had also strengthened the owners' confidence in the site.
The interim manager was responsible for implementing the turnaround plan and supported the management team, particularly in critical negotiation situations with customers and suppliers. He also organized the necessary support for the central function from Germany. The site's management team reported on the implementation of the measures in regular status meetings.
Contribution margins with OEM sales remained at a low level for the time being
It was clear to everyone that the most important contributions to the turnaround would have to come from customer negotiations, as the volume business with car manufacturers in Brazil was in deficit. Typical for the automotive industry, the company was bound by long-term contracts. Under these conditions, the interim manager defined a negotiation strategy with the group management in order to adjust the price level with the OEMs. However, the negotiations with the car manufacturers were very difficult and a partial agreement was only reached at the end of the 2016 financial year. Despite this, the contribution margins with OEM sales remained at a very low level.
Significant increase in profitability through expansion of the spare parts business
The restoration of profitability came via the site's second mainstay, the automotive spare parts business. The management team identified the further development of the spare parts business as an opportunity to secure success in the medium term. The site was already producing components for car manufacturers and selling spare parts for external brands. These were good prerequisites for promoting sales via an additional sales channel.
The sales team launched an initiative to introduce the Group's own brand to the Brazilian spare parts market. The interim manager coordinated the adaptation of the site organization to meet customer requirements in terms of logistics, quality and aftersales. Introducing the company's own brand to the Brazilian aftermarket was an exciting project. The implementation did not run smoothly and the plans had to be repeatedly improved. The interim manager acted as a crisis manager in these situations and successfully contributed to the development of the operational business, be it in the event of supply bottlenecks or quality problems. After initial difficulties, the market launch of the company's own brand was very positive and contributed significantly to sales growth through the acquisition of regional and national wholesalers.
Turnaround achieved and profits made after twelve months
The targeted turnaround was achieved in the 2016 financial year and the company returned to profit.
A significant contribution to the turnaround was the acquisition of new customers in the automotive spare parts business and the associated growth. In particular, sales with the company's own brand contributed to sales growth and additional contribution margins. The development of the spare parts business was also the decisive factor in securing the site's profitability in subsequent years.
