November 29, 2020

Germany rescues its automotive sector with an injection of 5,000 million euros


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The German car industry gets the bailout it has been asking for for months. Merkel promised last night, in a meeting with the presidents of the large manufacturers, to inject up to 5,000 million euros in government aid to overcome the crisis and continue the transition to electric cars. The Foreign Ministry explains in a statement that it wants to extend until 2025 the aid to encourage individuals to buy electric vehicles, replace old trucks and install more electric charging points. “The German automobile industry is experiencing a long-term structural mutation, which generates enormous challenges for companies, regions and workers,” government spokesman Steffen Seibert justified after the meeting, before specifying that “small and medium-sized companies Vendor companies, in particular, must be supported during the transformation. ‘

The new plan to support this star sector of the German economy will allocate 1,000 million euros to extend incentives for the purchase of electric vehicles, in addition to the same amount in aid to renovate the old truck fleet and an additional one billion for a fund destined to support the technological investments of the suppliers. These aid are intended to encourage gas stations to equip themselves with electric charging points. The German government wants at least 25% of all gas stations to be equipped with fast-charging infrastructure by the end of 2022, 50% by 2024 and 75% by the end of 2026. “The goal of creating 50,000 additional charging points by the end of 2021 is maintained. This means that there will be 72,000 charging points accessible to the public, “said Seibert last night.

The The remaining 2 billion euros will come through existing reactivation funds and they will serve to help providers adapt to the new reality. The set of aid hopes to serve as a bridge in the middle of the technological transition and provide an advantage to the German sector compared to the rest of its competitors in other countries, which do not have the public aid cushion.

The government alleges, to defend these aid, the importance of the automobile sector in the country and its weight in the national GDP, since it represents a fifth of the industry, about 5% of GDP and generates more than 800,000 direct jobs, at less before the health crisis. The Vehicle sales plummeted 23% in the first ten months of the year, compared to the same period in 2019. But above all it is influenced by the difficulty of the sector to face the complex and expensive shift towards electric mobility, where most German manufacturers are now trying to make up for the delay and where international competition is clearly ahead , as evidenced by the large factory that Tesla is already finalizing on the outskirts of Berlin and from which 500,000 electric cars will come out per year, ready to be marketed at low prices throughout Europe.

The German government has seen with concern that this crisis was beginning to affect employment in the sector. In September, MAN group, announced a cut of 9,500 workers, a quarter of the workforce, and the possibility of closing its centers of production in Germany and Austria. BMW has announced several cuts plans with more than 6,000 layoffs in the country. Mahle cuts another 2,000 jobs in Germany and Continental has acknowledged that thousands of its jobs are at risk. The production centers for cars, buses and trucks are concentrated in three states in particular: Bavaria, Baden-Württemberg and Lower Saxony and it is these Länder that have lobbied the most in Berlin for the rescue.

Continental CEO Elmar Degenhart says that “after a decade of rapid and profitable growth and expansion of the workforce, the industry is on the verge of experiencing the worst crisis since World War II.” The German government does not expect the record production level of 2017 to be possible again until at least 2025 and admits the possibility that that forecast will not come to pass, after in August, for example, car sales in the European Union they were 18% lower than in the same month of 2019, while in China they grew by 9%.

Asia’s momentum in the sector is already insurmountable without public aid. Klaus Rosenfeld, CEO of Schaeffler, a German component manufacturer, admits that width cuts are being considered for the first time in a market, Europe, which was traditionally the most stable, and that manufacturers will tend to invest more and create jobs where demand is strongest, or at least most stable. Asia not only concentrates the new increases in world demand, but also has increasingly better trained professionals, better infrastructures and costs that remain below Europeans. Germany’s great fear is that investments by large groups, including Germans, will be diverted to Asian countries, where the legislation is not so aggressive with the car.

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