car industry in emergency covid

Hildegard Müller (VDA): The car industry needs strong European policies to regain its competitiveness after coronavirus

Here is the full text of the interview with Hildegard Müller, President of the German Association of the Automotive Industry (VDA) on Germany, Italy, Europe and the challenges after Covid-19

di Isabella Bufacchi

8' di lettura

The coronavirus pandemic is having a huge impact on production, sales, value chains, component suppliers, exports and imports, costs: how bad overall was the German automotive industry hit so far by the coronavirus pandemic and when do you think it could go back to pre-Covid levels?

The global automotive industry has been hit massively by the coronavirus pandemic. The German market registered a minus of 35 % in the first half of 2020. For the international markets, the situation looks similar: Between January and May, the European car market collapsed 43 %, the US market 23 %, and the Chinese market 27 %. We expect a minus of around 17% for the world car market for the entire year 2020, the situation for commercial vehicles looks even worse. Studies forecast that it will take a few years until we reach pre-Covid-19 levels. Consequently, we do not expect a quick recovery after the crisis. This is particularly true for companies that are struggling with both the crisis and the transformation of the industry. Both processes are happening simultaneously, making it twice as challenging. For some companies, the situation threatens their existence.


How did the German car industry react to lockdown restrictions in Germany?
We cannot say for certain how many of the factories actually closed due to the restrictions that were put in place because of the coronavirus. But the numbers for April indicate that car production almost entirely came to a standstill, with a decrease of 97 % in comparison to April 2019. In May, we observed a slight improvement, but still with a decrease of 66 %, which is still severe. In June, the situation improved, but production between January and June 2020 was still 40 % lower than last year. This is the lowest level of car production in Germany since 1975. But the closing of factories and other sites was important to ensure the health protection of the employees. This is what matters the most in light of a pandemic as severe as Covid-19.

How many workers in the car industry in Germany were and still are in Kurzarbeitergeld because of coronavirus?
Short-time compensation has been an important means for companies as well as employees to respond to the crisis. And there is still a significant number of the more than 800,000 employees in the automotive industry in short-time work. In June, about half of the 814,000 directly employed people in the German automotive industry were working shorter hours. In the last weeks, we have observed an easing of tension, but particularly smaller and medium-sized enterprises are still affected by the crisis.

How important are the State guaranteed emergency KfW loans to tackle this crisis in the German automotive industry?
Components suppliers are responsible for two thirds of the value added of a car, so they are the backbone of the automotive industry and the German industry in general. These companies have been particularly affected by the current crisis, especially with regards to liquidity. Thus, the KfW emergency loans are an important tool for many of our member companies to secure liquidity and overcome the crisis. Most applications for the KfW loans came from the manufacturing sector and automobile trade, so we welcome the initiative of the government to react quickly to the crisis.
Did many German automotive companies contribute to deal with the health coronavirus crisis by producing masks ore else?
Even though the extent of the coronavirus crisis could not have been predicted and many of the countermeasures had to be implemented swiftly, our member companies have responded impressively to it and fulfilled their social responsibility. Some companies have switched production to medical protection equipment and have produced filtering facepieces, medical gloves, sanitizer, and protective clothing. Other examples show that companies have supported regions that have been hit hard by the pandemic by building hospitals or giving their employees access to 3D printers to build visors for protective masks. Other companies have donated significant amounts of money to medical facilities.

The car industry is one of the most important sectors in trade relationships between Italy and Germany. Was the value chain disrupted or damaged by Covid? Do you see signs of going back to work?
First of all, I would like to deliver my condolences to the Italian people for their losses. Italian has been hit particularly hard by the effects of the coronavirus. Therefore, we understand and support Italy's call for solidarity. Our countries are close partners and depend on each other. We have been in close contact with the Italian automotive industry and have offered our support in these trying times.
Regarding the economic implications, the pandemic has affected our relationship with Italy heavily. In the first quarter of this year, parts worth 787 million euro were exported from Italy to Germany – this amounts to a minus of 17 % compared to the first quarter of 2019. In March alone, the minus amounted to 29 %. We have observed an improvement after the borders have been opened again but it is still important for companies in both countries to work together closely to overcoming the crisis. Both of our nations' prosperity and many jobs depend on a functioning value chain. But the priority in this should always be health protection. We have developed specific measures to protect employees and customers while reboosting the economy and have discussed them together with our Italian friends. Our aim is to reboost the entire value chain and therefore we closely cooperate with our partners across Europe.

The coronavirus is a global shock. Moody's forecasts that the global car sales will fall by 20% in 2020, but -30% in Europe. And in the German automotive industry, two thirds of demand comes from abroad. The Covid-crisis could reduce globalization and increase protectionism. Can the German car industry deal with these challenges alone? Do we need a strong European car industry policy?
Our focus should be on European solidarity. What we need now, maybe more than ever, is an initiative on the European level to ensure strong and coordinated action. The automotive industry is European at heart and seeing that borders had to be closed due to the spread of the coronavirus was not only a massive economic burden but also a challenge for European values. We cannot risk losing European achievements in the long term.
Now, the industry, by this I do not only mean the automotive industry, needs to be at the core of the EU's answer to the crisis. A strong economic basis is the cornerstone of a successful transformation. This also needs to be considered in the European Green Deal. We are fully committed to achieving climate neutrality in road transport by the middle of the century. In this context, our manufacturers do not question the agreed CO2 fleet targets for 2020/21 and 2030. However, additional burdens should be avoided. The envisaged tightening for 2030 needs to be reassessed in the light of the current crisis, its economic consequences, and the transformation of the industry. The use of scarce financial resources requires careful consideration in the context of an impact assessment, which must fully assess and consider the economic and social impact of the corona crisis.

Do we need a European Car Marshall Plan?
I would not go so far and call it “European Car Marshall Plan” but it is undeniable that the European car industry needs the right policies to regain its competitiveness after the current crisis. We have presented a 12 points plan that includes proposals that are supposed to boost automotive demand and encourage fleet renewal across Europe, both for cars and commercial vehicles, incentivize research and innovation. It is also important to expand rapidly charging infrastructure for electric mobility as well as other alternative powertrains, for example e-fuels and hydrogen, across Europe. All these measures need to be put into action quickly. Otherwise, other countries' automotive industries, for example China, will have a headstart. This could erode our industrial backbone in Europe, which has proven a recipe for prosperity in the single market.
On the German government stimulus package

The German government is helping the car indutry in the coronavirus crisis but the increased subsidies are aimed only to battery cars: is this a missed opportunity? The VDA “regretted” that the proposals of the industry for a “broad-based and directly effective economic stimulus package were only partially included in the economic stimulus package that was passed”. In particular, the VDA asked for a scrappage scheme like the Abwrackpraemie 2009, subsidies for fuel-driven petrol and diesel cars on the top of electric cars.

The economic stimulus package contains important measures and addresses crucial and good points. But it is questionable whether the measures for the automotive industry will give a strong impetus to the economy and the climate. Both of these aspects need to be thought of together – climate and industrial policy can be two sides of the same coin. For example, including diesel and gasoline cars would have helped the whole economy and climate protection as well. Since 2008, the relative CO2 emissions of newly registered cars in the EU have been reduced massively. While in 2008, the medium CO2 emissions amounted to 153.6 grams per kilometer, during this year they only amounted to 122.6 grams. This is a reduction of more than 20 percent. Efficient diesel and gasoline cars have played a big role in reducing the emissions to this extent and will do so in the foreseeable future, in all of Europe.
Is the increase from €3,000 to €6,000 subsidies for electric cars going to boost sales?
Doubling the state's portion of the environmental bonus for purchasing electric cars will indeed provide positive impulses in reviving the currently very weak demand on the auto market. But the share of electric cars on the overall car market in Germany only amounts to around eight percent. And we face an additional challenge: Having an infrastructure that is suited for electric mobility. We just need to look at the European perspective: To boost electric mobility in the EU, 1 million charging points proposed in the Recovery Plan are not enough. In 2025, we expect a stock of 10 million electric vehicles in Europe. For this number of vehicles, 1 million charging points would be sufficient. But looking at the year 2030, we will need 3.4 million charging points. Then, there is also need for the infrastructure for other innovations, for example hydrogen. Consequently, there is a lot of work to be done in the coming years.
Is the VAT 3% cut from 19% to 16% a big help to increase combustion engine car sales, which still represent 90% of sales in Germany?
The VAT cut will benefit all cars, including diesel and gasoline cars, and we want to contribute our share as an industry. The manufacturers organized in the VDA have promised that the incentive resulting from this measure will be enhanced. This means that, while keeping in line with cartel law, the manufacturers in the VDA will create the necessary conditions for passing on the full benefit of the VAT reduction to their customers. The companies will each also examine how the effect of the VAT reduction can be reinforced to accelerate sales of modern vehicles. By buying the lowest-emission vehicles that have ever existed, our customers contribute to climate protection and to the recovery of one of Germany's key industries. Incoming orders in June went up, which is a dawn of hope.

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