In almost every industry, a company or product comes along, and its name becomes the de facto term for what it is.
Band-Aid bandages, Xerox copy machines, and Zoom videoconferencing are just some examples of this phenomenon, but one company has made quite an impact on the automotive industry.
If you have ever sat in a commercial airliner or behind the wheel of a sporty car, chances are that you have sat in a seat made by a German company named Recaro.
In the world of aftermarket car customization, Recaro is often seen as the gold standard in racing-style seats, as its designs are often copied and replicated by other cut-price manufacturers.
In the same manner, the sentence "Equipped with Recaro seats" has become a key selling point for sporty cars from brands like Ford and Chevrolet to BMW and Porsche, enticing drivers to feel more like racing drivers on their daily commutes.
However, recent developments have jeopardized the futures of Recaro and another prominent auto supplier, threatening the automotive supply chain in the process.
Recaro's final seat
According to reports by Autocar and German business news magazine Wirtschaftswoche, Recaro's automotive division has filed for bankruptcy.
In an announcement, Recaro stated that the company will maintain full production capacity during the proceedings to continue fulfilling its existing orders and new customer inquiries.
The bankruptcy news comes as a surprise to Recaro's 215 unionized workers, as their jobs are on the line. Alessandro Lieb, the managing director of the IG Metall union, told Wirtschaftswoche that Recaro management did not indicate any signs of a potential crisis during its most recent meetings.
Additionally, he noted that Recaro employees themselves took steps to ensure the company's financial stability, including waiving pay raises and benefits to ensure the company's health.
"Today we - the workforce, the works council, and I - have to admit: It was not enough," Lieb said, translated from German.
"We expect that all options will be exhausted to secure jobs and find a sustainable solution.
The Works Council, a separate organization that works with trade and labor unions in countries Germany, echoed a similar sentiment.
"We are disappointed and feel let down by management," Works Council head Frank Bokowits said in a statement translated from German. "Our colleagues have made great sacrifices to support the company."
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Woe is Private Equity
With a client list that includes heavy hitters like BMW, Nissan, Chevrolet, Cadillac, Honda, Toyota, and Subaru, losing the biggest name in automotive seating is a huge blow to the automotive supply chain.
Unlike parts that experience wear and tear like tires, a car's seats are not a generic, one-size-fits-all solution. Though there may be other firms that make seats, like Adient and Lear, OEM Recaro customers are back to the drawing board when it comes to putting in the right racing-style seat in their most desired models.
The Recaro Group consists of separate companies that independently manufacture seating solutions. In addition to automotive seats, Recaro Group companies also make seats for commercial airplanes, passenger rail lines, and office furniture.
The automotive seats division was sold to Johnson Controls in June 2011. It held the rights to market Recaro seats until 2016 when automotive seat specialists Adient purchased it.
In 2020, the legendary car seat maker was acquired from Adient by a Michigan-based private equity firm called Raven Acquisitions and was split apart from the rest of the Recaro Group.
Private equity firms are often criticized for their methods of "improving" the company. Companies that are enticed by private equity are usually drawn to the immediate cash injection, which is used to buy a controlling stake and take companies private. The problem is that after the sale happens, firms have total control of what happens inside the company without having to disclose any of the financial information shared during an earnings report.
Without that kind of accountability, companies risk being virtually gutted by said firms. Toy's R Us, and Payless Shoes are just two well-known examples that are no longer with us; they were gutted by private equity.
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Wheel Trouble
Recaro is not the only auto supplier that has recently filed for bankruptcy.
In the same day, German wheel manufacturer BBS also filed for bankruptcy after it reportedly failed to pay wages for May and June 2024.
ISH Management Services, which acquired BBS after the wheel maker's 2023 bankruptcy filing, said in a statement before the filing that it is committed to keeping the company running.
"We will never let down the people who have walked this path with us," the firm said, translated from German. "We will never give up on the BBS brand, which for us is one of the biggest German global brands. We have a plan, and we are determined to implement it."
BBS is known for its line of aftermarket wheels and for being the OEM supplier of wheels for brands like Mercedes-Benz, Porsche, and BMW. Additionally, the brand is the official supplier of wheels for Formula 1 and NASCAR.
As per Motor1, BBS' U.S. operations, which are under different ownership, are unaffected. However, the German bankruptcy filings do create a ripple effect.
"We are independent of that whole situation," BBS America President Craig Donnelly said. "But it’s a bad situation for everyone overall, because we don’t know what's going to happen at this point."
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