Did the chip shortage have a negative effect on the relations between Grupo Antolin and the automakers?
The chip crisis is happening as we deal with other challenges such as the recent rise in oil and commodities prices. And we are not finished with the pandemic, which triggered a sudden drop in our volumes, for which we need to be compensated. All these issues have impacted our good relations with our customers. In addition, the current level of overcapacity within the industry means there is intense competition in the market between suppliers.
Could you elaborate?
I've been working in this industry for 37 years and every year customers have asked for price cuts. Over the last few years the requests have been for cuts of 5 percent annually. This is currently being driven by the huge investments automakers are making, particularly in electrification. They are now asking for significant price cuts as a prerequisite of being assigned any production program. At the same time, volumes decline and material prices rise. We can reduce prices when possible, but we are unable to deliver on every cost-reduction target that customers ask for. To cope with this pressure, we have worked hard over the last two years to improve productivity. Our ability to increase profitability this year compared with 2019 is because of a dedicated effort to cut our own costs.
What measures did you take?
The company is speeding up its digitalization programs in production, sales, invoicing and more. As part of the shift to Industry 4.0, our focus is on quality, maintenance and internal logistics. We will start to see the positive effects of these projects in the short term. It's in our hands to be more competitive. In this sense, we are also analyzing our footprint in Europe to possibly reduce our fixed costs.
Does the plan to reduce your footprint in Europe put factories in your home market of Spain at risk? Can Spain remain competitive in this new automotive landscape?
The fact we will reduce the footprint in Europe does not mean we will do it in Spain, where we have very productive factories. But as I often tell the unions, Grupo Antolin does not produce in Spain because we are Spanish, but because we can be competitive in Spain. This has to be the mentality of the workers in Spain. As long as we are able to maintain top level productivity and quality, we will have factories in Spain. That is not only true for us, but for the entire Spanish automotive industry.
Will the merger of PSA and Fiat Chrysler Automobiles that created Stellantis put additional pressures on suppliers?
The competitive landscape has clearly changed in Europe. We are now down to just two very big customers: Volkswagen Group and Stellantis. The formation of Stellantis will impact suppliers because the new group wants to achieve synergies. Therefore, if you want to get some projects from Chrysler, the group review the business that you have with PSA and will ask for synergies. We have already faced this situation with Volkswagen. Big interiors suppliers such as us will face more frequent competition with our direct rivals, but it is the smaller suppliers that will suffer the most. I'm talking about companies that deliver locally to PSA or FCA. They will have a hard time because they do not have the capability and global reach to leverage.
You mentioned the need to make huge capital investments. The percentage of your revenue reinvested into R&D peaked at 7 percent in 2018 and you told us last year your target now 6 percent. Did you cut investments last year due to the pandemic?
We invested 7 percent of sales only in the three years after the 2015 purchase of Magna Interiors business (2016-18). In 2019 we invested about 5.5 percent of our sales. We cut the number in 2020 to 4.5 percent to protect our liquidity during the pandemic. For this year and in the future we expect to invest 5 to 5.5 percent of revenue into R&D.
Has Grupo Antolin benefited from the move toward electrified vehicles and if so, how?
Automakers normally want to offer more and more diversified lighting in the interiors, both decorative lighting and functional lighting meant to communicate with the driver. In the last year we have done a lot of work in this field particularly for electric cars. We are talking with our customers about how to provide more thermal comfort to passengers, taking into account that electric cars don't have an engine to generate heat that can help warm the interior. We are working on radiant surfaces integrated in our doors and instrument panels. All in all, while our work on interiors for traditional cars and electric cars is not dramatically different, we still believe we can add significant value to battery-driven cars. We also striving to reduce the weight of our parts, which will be key for the range of electric vehicles.
Is innovation or cost the driving factor with customers when the purchasing components for EVs?
Innovative players such as us expect to win more business in electric cars, but the lowest price will win the contracts. That is because our customers want to make electric cars more affordable. A lot of people cannot afford to pay 30,000 euros for a car.