German car industry gets cold shoulder from Berlin
Politicians and public reluctant to see sector receive special assistance
In 2009, during the last financial crisis, a new compound noun beat “Bad Bank” and swine flu to be crowned the German word of the year.
“Abwrackprämie”, or scrapping bonus, entered the lexicon as Berlin spent €5bn on a stimulus programme that propelled car sales in the country to an all-time record; a scheme that was soon aped by the UK and France.
But in the wake of the coronavirus crisis, German carmakers damaged by the “Dieselgate” emissions scandal are finding it hard to convince Angela Merkel’s government to pull the same economic lever again.
Despite urgent pleas from the once-mighty car lobby — the VDA — a much-anticipated teleconference between the chancellor, her top ministers, and the bosses of Volkswagen, Daimler and BMW on May 5 ended without resolution.
Ms Merkel’s administration would commit only to further meetings to “discuss measures to stimulate the economy”, with a possible announcement in early June.
Car executives were quick to express their dismay.
Herbert Diess, the chief executive of the world’s largest carmaker, Volkswagen, underlined that an incentive scheme would have a “powerful, broad-based and immediate effect” on Europe’s largest economy, as the stimulus would trickle down to thousands of suppliers and dealerships.
Daimler’s Ola Kallenius had said he was concerned that customers would put off purchases in anticipation of a scrapping bonus, compounding the industry’s woes, while BMW’s Oliver Zipse conceded that it had become “difficult to convey” to the German public the need for an incentive scheme in their home market.
“Things have changed a lot since 2009,” said Stefan Bratzel, the director of the Center of Automotive Management near Cologne.
Due to the diesel emissions scandal, “a lot of trust and confidence has been lost”, he added, making it almost impossible for politicians to directly subsidise the sector, which supports approximately 3m jobs in Germany alone.
Last week, the presidium of Angela Merkel’s party, the CDU, which includes leadership hopeful Armin Laschet, dealt a further blow to the automakers’ hopes, as it came out in support of an “overall stimulus package”, signalling a reluctance to privilege a specific industry.
That message was echoed by the head of Germany’s largest union, IG Metall, which represents hundreds of thousands of car workers, while environmental movements launched a social media campaign to protest any subsidy.
“After years of building the wrong [polluting] models, tax money must not simply be thrown at companies so that they can put cars on the road at a lower price,” said Olaf Bandt, the chairman of environmental group Bund.
Instead, the organisation argued, the state should subsidise bicycle sales, and invest in public transport infrastructure.
While Germany’s auto chiefs have been careful not to waver from their commitments to meeting EU-wide CO2 reduction targets, the industry’s European lobby has asked for leniency from Brussels, bolstering activists’ arguments.
Carmakers and major suppliers have also provoked the ire of campaigners by planning to pay out €5bn in dividends this year, despite putting more than 200,000 workers on the state-sponsored furlough scheme.
Yet opposition to a scrapping scheme is not confined to politicians and activists.
Several leading German economists say the market conditions do not call for a revival of the Abwrackprämie, despite a warning from rating agency Moody’s that the western European market is facing a 30 per cent slump in sales this year.
“Unlike in 2009, there is no problem with financing car purchases,” said Gabriel Felbermayr, president of the IfW Institute. “Consumers have sufficient liquidity.”
A programme that purely supports the sale of electric vehicles could lead policymakers to “abandon the necessary technological neutrality”, he warned. Green cars already carry a subsidy of up to €6,000 in Germany, and account for under 10 per cent of models purchased.
Furthermore, the country’s car industry is even more reliant on exports than it was a decade ago, with almost two-thirds of demand coming from abroad.
Since the share of imported cars in Germany has also risen, a subsidy “would help foreign suppliers more than before”, Mr Felbermayr said.
Volkswagen, which had reopened its sprawling Wolfsburg headquarters to great fanfare two weeks ago, confirmed on Wednesday that it would have to idle some assembly lines, due to anaemic demand across Europe.
While the carmakers themselves have months of liquidity left, they say smaller suppliers cannot survive a sustained fall in demand while Berlin wavers.
Such appeals are met with little sympathy from Monika Schnitzer, who sits on the government-appointed Council of Economic Experts.
“If it is really true that the car industry is so important to Germany, perhaps that is a problem in itself,” she said.
Despite the auto sector’s oversized role in the country’s economy, a survey conducted for public TV channel ARD last week found that 63 per cent of Germans opposed giving it any specific help.
Nonetheless, “even though there is momentum against [Kaufprämien], I would bet it will happen”, said Dr Schnitzer.
“The lobby is very strong.”
Such a scenario could still work in the auto industry — and Berlin’s — favour, said Jürgen Pieper, an analyst at Metzler, as it would act as “pan-European stimulus”.
“A Kaufprämie [buying bonus] scheme would have a pro-Europe element, and that’s useful in these times,” he said. If consumers end up buying Italian, French and Spanish cars, “it could help polish Germany’s image a bit in southern Europe”.
The more immediate focus, however, is on the auto industry’s domestic woes.