Merkel and German auto industry seek ways to restart factories

| April 2, 2020 More

Chancellor Angela Merkel and German auto industry executives are studying how and when to restart the country’s sprawling factory network amid concerns that some cash-poor suppliers may not survive the damage from the coronavirus pandemic.

The bosses of Volkswagen, BMW and Daimler held a crisis call with Merkel on Wednesday, Germany’s Handelsblatt newspaper reported on Thursday.

Carmakers have halted production at some sites as governments around the world have imposed lockdowns on their populations in response to the coronavirus outbreak.

Merkel and the executives discussed measures to minimize contagion risks and protect workers’ health once assembly lines resume churning out vehicles, according to people familiar with the talks.

VW Group CEO Herbert Diess last week said the automaker might have to cut jobs if the pandemic is not brought under control because the company is burning through about 2 billion euros ($2.18 billion) a week.

Handelsblatt cited participants in the call as saying that automakers were particularly concerned about the supply chain.

A VW source told Reuters that the participants discussed the situation in the industry and how production could be started up again. There was agreement that an EU-wide approach to re-starting production was needed, the source said.

“It doesn’t help if one country forges ahead and then everything in Italy or Spain is still at a standstill,” the source said, adding that such a scenario would result in gaps in the supply chain.

The source said in the talks there had been agreement that a working group, including the government, industry and the Robert Koch Institute for infectious diseases, should be set up to develop standards for protecting employees when production is restarted, such as protective clothing, masks, distancing workers and frequent cleaning of sanitary facilities.

The source said the carmakers also discussed the situation facing suppliers and that while big original equipment manufacturers were well provided for in terms of liquidity, that was not the case for many suppliers.

A source at Daimler said Merkel, Economy Minister Peter Altmaier, Finance Minister Olaf Scholz and Joerg Hofmann, head of the IG Metall trade union, had all taken part in the meeting with Daimler CEO Ola Kaellenius, BMW boss Oliver Zipse and VW’s Diess.

A government spokesperson confirmed that the phone meeting took place but declined to comment further.

Germany can ill afford a prolonged shutdown of its car industry, which employs more than 800,000 people and is a key indicator of industrial health in Europe’s largest economy.

Damage to the European auto industry is piling up as automakers shutter factories after governments restricted public life to stem the spread of Covid-19. Latest data from Spain showed a 69 percent drop in car registrations in March to below the worst levels of the financial crisis. Sales fell by 72 percent in France and by 86 percent in Italy.

The disruptions have ripple effects far beyond large carmakers, affecting hundreds of companies that make components from screws to seat cushions. Many of these firms are small, family-owned entities that lack deep financial resources, putting them particularly at risk.

Germany’s automotive suppliers employ about 300,000 people and range from local outfits with a handful of employees to multinationals such as Continental, Robert Bosch and ZF.

German companies, including automakers, filed almost half a million applications for financial aid under a government wage-support program in March. That suggests about a fifth of the country’s workforce will have its hours reduced, according to Greg Fuzes, an economist at JPMorgan Chase.

The country is facing the worst recession since the global financial crisis, the government’s economic advisers predicted earlier this week. Even if most business and movement restrictions are lifted in mid-May, output could shrink by 2.8 percent this year, they said, urging policy makers to communicate criteria for ending restrictions and plans to stimulate demand to help exit the crisis.

Small suppliers in danger

While Germany has set up a series of measures to aid companies, the concern is the support will not reach many smaller, cash-strapped suppliers quickly enough to keep them afloat. Widespread bankruptcies among those firms would be a disaster because they are critical for the finely-tuned supply chain to restart, according to Continental CEO Elmar Degenhart.

The companies have already been wrestling with the shift from the combustion engine to electric vehicles, resulting in tens of thousands of job cuts announced well before the coronavirus crisis escalated. The problem now is that smaller suppliers typically do not have access to extensive credit lines to secure liquidity.

If state aid arrives even just a few days too late, managers of smaller businesses have no choice but to file for insolvency as they otherwise risk becoming personally liable, Degenhart said.

“For many of these companies it’s a black-or-white decision,” Degenhart told reporters on Wednesday, after Continental abandoned its earnings outlook, citing coronavirus uncertainties.

Reuters contributed to this report

Source:  Bloomberg from Automotive News Europe


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