Insolvency Won't Affect Karmann USA

One week after Karmann USA Inc. launches a new business unit at its North American headquarters in Plymouth, MI, parent company Wilhelm Karmann GmbH declares insolvent its 60-year-old vehicle-assembly operations in Europe.

Germany's largest independent auto assembler says it was required by law to file for insolvency because plummeting vehicle sales and deteriorating finances have left it unable to pay for a massive restructuring announced in September.

Some 2,240 workers, about half of Karmann's German workforce, lost their jobs. That followed earlier cuts in 2006 and 2007. Karmann says the filing applies only to its contract-assembly operations, which manufacture complete vehicles at two plants in Rheine and Osnabruck.

That business has suffered dramatically, not only for Karmann but for European competitors Valmet Automotive, Bertone SpA, Pininfarina SpA and Magna Steyr Fahrzeugtechnik AG & Co. KG.

Karmann produced the Chrysler Crossfire until last year and the previous-generation Audi A4 convertible until February. Karmann's last vehicle-assembly program, the Mercedes CLK convertible, is ending now.

The insolvency filing suggests the pipeline for future programs is empty.

The market for contract-assembled niche vehicles will remain depressed for four or five years, Erik Roeren, president and CEO of Karmann USA, tells Ward's in an interview before the filing.

“We are clear it will be a long time before that market comes back,” he says.

Roeren's U.S. operations, which are not part of the filing in Germany, assemble convertible tops for the Ford Mustang, Pontiac G6 and Chrysler Sebring. Karmann has not followed competitor Magna Steyr's lead in attempting in recent years to set up a vehicle-manufacturing plant in North America.

With OEMs closing plants, Roeren sees a need in the future for niche vehicle assembly (at annual volumes between 10,000 and 20,000 units), when the economy improves and volumes rebound.

Since 1949, Karmann in Germany has contract-assembled more than 3.4 million vehicles, including the Volkswagen Karmann Ghia, Beetle convertible, Scirocco, Corrado and Golf convertible.

With that business insolvent, Karmann now focuses its resources on its remaining business units, convertible tops and production technology. Karmann is the world's leading supplier of convertible tops.

Roeren declines to estimate what percentage of Karmann's E1.3 billion ($1.7 billion) in revenue was derived from vehicle assembly in 2008.

Karmann's two German assembly plants now will concentrate on roof systems. The European plants supply convertible tops for the Mini Cooper, Renault Megane II CC, Nissan Micra CC, Bentley Continental and BMW 1-Series.

At its U.S. operations in Plymouth, sales are falling far short of earlier projections. As a result, the supplier has created a new business unit, named Karmann Classics, to rebuild and restore convertible tops in the upper Midwest for vintage cars, particularly the Karmann Ghia and original Volkswagen Beetle.

A company spokesman says the insolvency filing will not derail the Karmann Classics initiative, or convertible-top business in North America.

In response to the recession, Karmann has restructured the Michigan operations four times in two years. Roeren says 43% of the local workforce has been eliminated, down to about 300 employees today.

He says the Plymouth plants are running at an intolerable 30% capacity utilization, and this year's forecast calls for a 30% volume drop, from 56,000 tops in 2008, to about 33,000 this year.

Ward's data shows installation of convertible tops in the U.S. has been remarkably stable. But 2009 appears to be a watershed year. Several years ago, the best-selling convertibles, the Sebring and Mustang, each could count on annual sales of about 50,000 units. “We will not see that again,” Roeren says.

Convertibles will be popular, but volumes will decrease and will be spread among a larger number of vehicles, including new entries anticipated from Honda Motor Co. Ltd. and Toyota Motor Corp., he says.

Karmann must look beyond the convertible business, Roeren says. For instance, Karmann's expertise with hydraulic mechanisms to raise and lower convertible tops could be valuable in liftgates or even hospital beds.

The company that became a household name in Germany with cars such as the Karmann Ghia now must think seriously about opportunities in hospital beds, just to stay alive.