Continental fights for price rises, to keep costs in check

By Victoria Waldersee

BERLIN (Reuters) -Continental said it was fighting for price increases in negotiations with customers and seeking ways to further cut inventory to improve its automotive business performance.

The German auto parts supplier is betting on higher pricing and a focus on premium products to compensate for a declining market in its tyres sector in North America and Europe, which together make up around 70% of its total sales.

Chief Financial Officer Katja Duerrfeld said she did not expect Continental to return to pre-COVID levels of working capital, adding on Wednesday’s earnings call that she forecasts it will fall by around 10% from current levels.

“We are working hard to determine the right level of inventory for the different parts and components we have.”

“We are fighting for our new price negotiations … to make sure we get what we deserve for the products and services we provide,” Duerrfeld added.

Asked about Continental’s position on ongoing negotiations over improved pay and benefits with the United Auto Workers in the United States, Deurrfeld said their demands were “strong” and would lead to a “new category” of cost inflation.

Continental said it currently expects increased costs of 1.4 billion euros ($1.54 billion) from wages, salaries, energy and logistics.

It said it had struggled with higher logistics costs as well as currency change effects primarily from the Chinese yuan and Mexican peso in the second quarter but expected normalisation in the second half.

Continental lowered its tyre sales outlook on Wednesday to 14-15 billion euros from 14.5-15.5 billion previously, but kept its margin outlook unchanged as higher pricing and a focus on premium products boosted second quarter revenue.

It needed to “make up considerable ground” in its automotive segment, which fell short of expectations in the second quarter partly because of currency exchange effects and freight costs.

The company confirmed its lower than expected adjusted earnings margin 4.8% on sales of 10.4 billion euros, as reported in preliminary results in July.

The automotive division’s loss on its earnings margin of 0.6% was below the consensus of a 1% rise, despite meeting expectations for sales at 5.1 billion euros.

Continental said it expects passenger car and light commercial vehicle production to rise 3-5% this year from a previous forecast of a 2-4% rise, but expects the global tyre replacement business to remain unchanged or decline by up to 2%.

Preliminary figures showed Continental’s global passenger car and light commercial vehicle production grew by around 16% in the second quarter compared to last year.

($1 = 0.9101 euros)

(Reporting by Victoria Waldersee, Editing by Friederike Heine, Barbara Lewis and Alexander Smith)