(Dec 3): ZF Friedrichshafen AG, a maker of gearboxes and other components for BMW AG and Volkswagen AG, has seen its debt refinancing costs surge, showing how the German auto industry’s struggles are cascading through suppliers.
Interest rates on the company’s latest five-year euro bond sale jumped to 7%, which compares with 2% on a similar deal in 2019, when low rates prevailed. The increased credit costs add to the financial strife that has prompted ZF to seek thousands of job cuts, including in its electric vehicle (EV) division.
Higher rates are set to continue as the company has more than €2 billion (US$2.3 billion or $3.0 billion) a year of debt maturing from 2027 through 2030, according to its latest results. While the maker of advanced driver-assistance systems and electric axles tapped the bond market early to manage those deadlines, each refinancing round locks in significantly higher borrowing costs that are eroding thin margins at a delicate time.
ZF’s debt can be traced to two major acquisitions totaling some US$20 billion, designed to add products for electric and software-defined vehicles. But as the EV transition stalls and Chinese rivals flood the market, ZF and fellow German suppliers such as Robert Bosch GmbH are bracing for a prolonged downturn. Both manufacturers are accelerating efforts to restructure, slashing a combined 27,000 jobs through 2030.
Moody’s sees ZF, which employs more than 150,000 people, at the weaker end of its Ba2 rating, already signalling greater credit risk, according to analyst Matthias Heck. The level could prove difficult to hold if conditions don’t improve, he said.
“ZF is still struggling to generate positive free cash flow, and higher interest costs are the reason for that,” he said in an interview.
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The company has already had to tweak terms on some of its bank debt to avoid the risk of a breach as performance worsens. Refinancing obligations total more than €13 billion through the end of the decade.
There was solid demand during recent bond placements and ZF is in a good position to handle upcoming refinancing deadlines, the company said in emailed comments to Bloomberg News. Its German operations are being reshaped to shore up competitiveness, it said.
“We’re witnessing a dangerous trend: companies are cutting investment, shifting production abroad and eliminating jobs,” said Barbara Resch, a ZF supervisory board member and the head of IG Metall in Baden-Württemberg, the powerful metalworkers’ union in the heart of Germany’s advanced manufacturing belt. “We risk losing industrial substance — and with it, our country’s future competitiveness.
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ZF reported a decline in sales during the first nine months of the year and a third-quarter operating margin of just 2.3%. While quarterly profit of €207 million more than doubled compared to a year ago, the company in November warned that the transformation will continue to weigh on returns.
With a product portfolio traditionally strong in multi-gear transmissions that aren’t needed in EV models, ZF sits at the centre of the mounting alarm across Germany’s network of suppliers. The company has attempted to rework its suite of offerings, but has been caught out by changing market conditions.
In 2019, ZF paid US$7 billion for Wabco, a maker of braking, suspension and safety systems used in trucks and buses. A few years earlier, ZF had pulled off a similar deal with its US$12.9 billion purchase of TRW Automotive, a major US supplier of brakes, steering components and airbag systems. After buying TRW and bringing down debt quickly, Covid disruptions, the semiconductor supply-chain crisis and a spike in interest rates curtailed ZF’s ability to do the same on the Wabco takeover.
ZF recently confirmed plans to cut about 7,600 jobs by 2030 in its Electrified Powertrain “Division E” — roughly a quarter of that unit’s workforce — as part of a wider plan to eliminate up to 14,000 positions in Germany. Meanwhile, Bosch said it would axe roughly 13,000 jobs in its Mobility division by 2030, affecting powertrain and mobility-related operations.
Bosch’s Germany-focused cuts are landing in units tasked with developing products for EVs and advanced driver-assistance systems, raising questions about the division’s role as the low-emissions shift progresses. At the Stuttgart-Feuerbach plant — home to the team whose work on hydrogen fuel cells won the German Future Prize in 2025, one of the country’s top innovation awards — the company is trimming about a quarter of staff, mainly in development.
It is also making deep reductions at Schwieberdingen, a hub to develop electromobility and driver-assistance systems, as well as at other engineering hubs. At the same time, the company is pouring investments into China, where similar work can be carried out at far lower cost.
“When you take a closer look, there’s simply a massive lack of any long-term perspective,” said Frank Sell, the head of the works council at Bosch Mobility, a division struggling to keep pace with faster and cheaper development at Bosch’s expanding R&D hub in China. “The effects of the powertrain transformation are worse than expected and are hitting our European sites with full force.”
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A spokesperson for Bosch Mobility wasn’t immediately available for comment. When the company announced job cuts in September, it said the restructuring was necessary to respond to global competitive pressures and to safeguard profitability in its automotive supply division.
Stalled sale
Compounding ZF’s challenge is the lack of a deep-pocketed shareholder able to inject fresh capital. The company is almost completely owned by the Zeppelin foundation linked to the south-western city of Friedrichshafen. As a private company, it’s unable to raise cash via equity markets like some peers. The firm had been seeking to raise several billion euros for its airbag and seatbelt business, Lifetec, in a bid to reduce leverage but that process has also stalled, leaving the group running short on options. Bosch’s setup similarly is a foundation.
Still, ZF has liquidity sources of over €7 billion, a buffer that smaller peers lack.
The German auto sector has cut nearly 50,000 jobs this year with suppliers the fastest-shrinking segment of what has long been one of Germany’s industrial backbones, according to federal statistics agency Destatis. Insolvencies among automotive companies rose to a record last year, the agency said based on data going back to 2010. Falkensteg Holding GmbH, a tax advisory firm, forecasts a roughly 30% jump in major insolvencies among automotive suppliers this year.
Restructuring has become more challenging as banks pull back from the sector and fresh financing grows scarce. A recent overhaul at Webasto AG, which makes vehicle roofs and heating systems, shows how lender support comes at a cost.
“Traditional banks have a general suspicion of the automotive industry, so they’re more reluctant to give additional credit or credit lines,” said Ralf Winzer, a senior partner at FTI Andersch.
After Webasto breached loan terms, lenders first agreed to minor adjustments, only to demand a full renegotiation when performance deteriorated further. The company, with €4.3 billion in sales last year, ultimately secured €200 million in new financing only after agreeing to transfer a significant stake to a trustee, a move that makes it easier for banks to take control if the situation worsens.
For smaller suppliers, financing options are becoming costlier. Many are turning to alternatives such as sale-and-leaseback deals or the Nordic bond market, where investors show greater risk appetite but borrowing can run into double-digit interest rates.
Automakers can step in with measures like shorter payment terms or raw-material financing for struggling suppliers, but support is selective and often tied to how dependent they are on a supplier. Several firms, including Standard Profil Automotive GmbH, have already ended up in creditor hands.
As the downturn deepens, Berlin is sounding the alarm. Chancellor Friedrich Merz — under pressure as his CDU-SPD coalition slips in the polls — last week urged Brussels to soften the European Union’s 2035 effective ban on sales of vehicles with combustion engines.
“If we lose this industry, then we have truly put our country’s prosperity at risk,” he said after talks with auto executives in Stuttgart.
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