Germany Lays Out $5.9 Billion Plan to Foster Auto-Sector Restart

(Bloomberg) -- Chancellor Angela Merkel’s government offered Germany’s hard-hit auto industry 5 billion euros ($5.9 billion) in aid to help weather the coronavirus crisis and invest in the transition to electric cars.

Berlin will extend cash bonuses for purchasing electric-powered vehicles until 2025, expand the country’s charging network and make payments for topping up batteries easier. The government will also offer incentives to replace aging trucks and help component makers invest in new technology.

Carmakers and parts suppliers, which employ nearly 800,000 people in Germany, were spending heavily on electric cars before the pandemic hit. That left companies exposed to the sudden drop in demand from the fallout. Auto production plunged 97% in April and has yet to recover to pre-pandemic levels, with curbs to stem the latest wave threatening to further sap demand.

“We are all aware that the industry is going through a difficult phase that affects hundreds of thousands of jobs,” Economy Minister Peter Altmaier said Tuesday. “We know this isn’t just a question that touches large carmakers but rather a question that deeply affects mid-sized companies,” which make components.

Figures on European car sales published Wednesday underscored the sector’s woes. New-car registrations dropped 7.1% in October, according to the European Automobile Manufacturers’ Association. Aside from a small gain in September, sales have been in decline all year and are down 27% through the first 10 months.

The urgency of the transition away from combustion vehicles was highlighted by the U.K.’s announcement that it will ban sales of new gasoline and diesel cars from 2030. France has also moved to prop up its automakers, with roughly 8 billion euros -- including state-backed loans such as 5 billion euros slated for Renault SA.

In a statement after Merkel took part in talks with auto executives Tuesday evening, the government said that the car industry still needs state support to deal with the pandemic fallout and the “great challenges” of long-term structural change, despite evidence of “the first signs of recovery.”

Germany boosted subsidies this summer to as much as 9,000 euros for electric vehicles and 6,750 euros for plug-in hybrids, in a move that pushed up demand for such vehicles. “The transformation in the sector must be underpinned along the whole value chain,” the government said.

Germany’s carmakers, once world leaders in automotive innovation, have been playing catch up on electric cars. Volkswagen AG, Daimler AG and BMW AG combined are valued at less than half of Tesla Inc., which is building a factory just outside Berlin to challenge the German car giants on their home turf.

The struggles extend to hundreds of parts makers -- companies often specialized in combustion-engine components and with fewer resources than global carmakers. Even big suppliers like Continental AG are suffering. Europe’s second-largest parts maker has widened cuts this year and last week forecast that profitability will shrink for the fourth time in five years.

“The federal government’s plan to electrify private transport is working,” Volkswagen Chief Executive Officer Herbert Diess said in a LinkedIn post, adding that VW’s share of electric and plug-in hybrids has risen to 17.5% of overall sales.

©2020 Bloomberg L.P.