Restructuring in the Automotive Sector: Securing the Ability to Take Action

Identifying financial risks early on

Financial problems rarely arise suddenly. In many companies, they develop over an extended period of time, for example due to declining margins, rising inventory levels, falling capacity utilization, or delayed and volatile customer orders. Often, there is a lack of the necessary transparency regarding the actual causes of the financial difficulties. Operational and financial metrics are viewed in isolation, risks are escalated too late, or negative trends are underestimated. 

Common causes: There is often a lack of transparency regarding the actual drivers of liquidity and cash flow. At the same time, a lack of integrated planning for earnings, the balance sheet, and liquidity, as well as inadequate scenario analyses and early-warning systems, make it difficult to identify financial risks at an early stage. Operational variances are often addressed too late, and financial risks are not consistently prioritized.

The result: Companies lose valuable time. Financing partners receive conflicting information, necessary decisions are delayed, and the scope for action becomes increasingly limited.

Our conclusion: Financial stabilization should not only begin once a crisis has already occurred. What matters most is the ability to identify risks early on and develop concrete courses of action based on that information.

Which early warning signs point to financial risks

Successful financial restructuring begins with transparency regarding the key drivers of performance and liquidity. This is not limited to traditional financial metrics. In the automotive industry in particular, risks often arise at the operational level before manifesting as liquidity constraints or covenant risks.

Key leading indicators include:

• Declining EBITDA
• Increasing working capital requirements
• Declining capacity utilization
• Growing forecast variances
• Rising inventory levels
• Negative operating cash flows
• Lengthening accounts receivable collection periods

What is crucial here is not to examine individual key figures in isolation, but to evaluate them holistically in the context of operational performance, the market environment, and the financing structure.

How do companies ensure transparency regarding liquidity and financing needs?

Many restructuring programs fail not because of a shortage of measures, but due to a lack of transparency regarding the actual financial situation. The foundation for sound decision-making is integrated planning that consistently links earnings, balance sheet, and liquidity trends. The focus is on rolling liquidity planning, robust scenario analyses, and KPI-based management with clear reporting and governance structures. The ability to realistically map out different scenarios is crucial, for example, in the event of declining call-offs, delayed restructuring effects, rising financing costs, or a lack of working capital relief.

The result: robust reporting not only creates internal transparency but also forms the basis for trust-based discussions with banks and other financing partners. The more transparent the planning, the easier it is to discuss financing needs, the impact of measures, and the necessary contributions from stakeholders.

Involve banks and financing partners actively

In tense situations, the quality of communication becomes a critical factor for success. Banks and financing partners do not expect everything to go perfectly, but they do expect transparency, consistency, and management that actively manages risks.

Companies that address risks early on, present robust scenarios, and outline clear countermeasures create significantly better conditions for stable financing relationships than organizations that communicate problems too late or downplay developments.

Key success factors include:

• Regular and structured updates
• Reliable planning assumptions
• Transparent scenario analyses
• Clear lines of responsibility
• Transparent decision-making logic

Especially in restructuring situations, trust often determines the extent of a company’s remaining room for maneuver — yet without transparency, financial recovery often becomes unfeasible.

What measures can stabilize liquidity and financing in the short term?

In addition to structural improvements, companies often need measures that are effective in the short term to stabilize their liquidity and financing options. Key levers include: 

Measures must not jeopardize either delivery capability or strategic competitiveness. That is why we combine short-term cash flow improvements with structural adjustments to our cost base, organization, and management.

What key metrics are critical for banks and financing partners?

Banks and investors now evaluate companies in a much more comprehensive manner than they did just a few years ago. In addition to traditional financial metrics, transparency, corporate governance, and management quality are becoming increasingly important.

Companies with a clear management structure and transparent communication create significantly better conditions for stable financing solutions, trust, and ultimately long-term partnerships with investors.

What does a successful restructuring process look like?

Successful financial restructuring combines prompt transparency with consistent implementation and close coordination among management, financial partners, and operational departments.

Programs that do not view financial restructuring in isolation, but rather closely link it to operational improvements and strategic development, are particularly successful.

Conclusion: Financial restructuring creates room to maneuver

The challenges facing the automotive industry are not going to disappear anytime soon. This makes it all the more important to adopt an approach that ensures financial transparency, addresses risks early on, and guarantees the consistent implementation of necessary measures.

Together with our clients, we lay the groundwork for sustainable manageability, resilience, and competitiveness. This creates the foundation for remaining capable of acting even during volatile market phases and for actively shaping future transformations.