The corona crisis is affecting the automotive industry – it also affects suppliers

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Up until now, Germany was considered the automotive country. But the industry seems to be oversleeping the change: When it comes to new forms of drive such as hydrogen, electric power or self-driving cars, German industry is still lagging behind.

What the future of the auto industry in Germany should look like will be discussed on Tuesday at the big auto summit via video chat. Chancellor Angela Merkel (CDU) invites not only her ministers but also the prime ministers of Baden-Württemberg, Bavaria and Lower Saxony, the chairmen of Volkswagen, BMW and Daimler, the main suppliers such as Continental and Bosch and the employee representatives.

The auto industry is by far the most important industry for economic growth in Germany. However, the industry has been hit by cuts such as the diesel scandal or the strict limitation of CO2 emissions. This is even more true in times of the Corona crisis.

The industry is no longer seen as a growth engine for Germany

Despite the pandemic, the automotive industry is still at the forefront of German industry and still supports various other trades: This is now shown by a study by the Institute for the German Economy (IW), which is available to the “Handelsblatt”. Nonetheless, according to study author Thomas Puls, the pandemic “hit hard”, the newspaper writes. The international supply chains were shaken by a supply shock and later a demand shock. The industry must therefore first regenerate.

The economists say that the industry will also have to cut many jobs, which is why it will “initially fail as a growth engine for Germany as a location”. Since the decision on the economic stimulus pact voted against a scrapping premium, the prime ministers of the car countries are now demanding other support. Bavaria’s Prime Minister Markus Söder (CSU) positioned himself against the plan to increase the value-added tax, which has been reduced to 16 percent, and is also in favor of a “CO2 premium”.

The chairman of IG Metall North Rhine-Westphalia, Knut Giesler, on the other hand, wants a four-day week for his employees so that they have more time to train themselves, reports the “Handelsblatt”. Above all, this should counteract the loss of jobs.

Above all, many jobs depend on the industry: the auto industry alone employs 936,000 people in Germany and 808,000 employees in the EU and generates around 38.9 billion euros in sales.

Small suppliers in particular are affected

According to the author of the study, Thomas Puls, the pandemic affects producers and smaller and larger suppliers to different degrees. Because, according to him, Corona acts “like a fire accelerator for the change that is already taking place towards more electronics and the electrification of vehicles”.

Small and medium-sized suppliers who have previously specialized in parts for combustion engines are particularly hard hit by the crisis. The IW report suggests that, as the “Handelsblatt” writes. In the past, they were unable to set aside anything due to the pressure on margins from producers. That is why they are now faced with the problem of not being able to follow the new electrified drive trend. As a result of the switch to e-cars, the market is becoming smaller and smaller and the number of jobs is falling. The medium-sized companies affected make up around 50 percent of the entire industry.

In addition, there is the problem that car manufacturers are producing more and more themselves, which means that demand from suppliers is falling.

That is why even medium-sized and successful companies such as the second largest automotive supplier, Continental, have to step on the financial brakes. Because when demand is low, the high fixed production costs are not covered. That is why the company now wants to expand an austerity program launched in September 2019. This should save costs of one billion euros per day, writes the “Handelsblatt”.

This also means a reduction of 30,000 jobs worldwide. In the Federal Republic of Germany this stands for the dismissal of around 13,000 Continental employees. The expenses for new investments are also to be reduced. Even with other industry leaders such as Bosch and ZF Friedrichshain, the current cost management is no different, according to the “Handelsblatt” article.

Ultimately, the entire industry has no choice but to reorient itself and go with change. Continental boss Elmar Degenhart says that in the future, instead of speed, profit and growth, his group will focus on “a new type of growth with future technologies”.


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