The great fear of the long crisis

The great fear of the long crisis

The automakers are preparing to resume production. But how many vehicles will they still have to build after the crisis?

© FILIP SINGER / EPA-EFE / Shutterstock

The Volkswagen factory in Wolfsburg is currently almost ghostly silence. Every now and then, a few security guards roam the huge production halls, a company spokesman says on the phone. Several other colleagues used the standstill to service or repair machines.

But this calm is deceptive. Several planning staffs – logisticians, production specialists, buyers – strive to create the blueprints for day X. The day when the machinery is to be started again. This is by no means an easy exercise, after all it is important to coordinate the start of production with suppliers from raw material suppliers to specialists – including just-in-time transport and often cross-border traffic.

The work for the group of several hundred men is really difficult for a completely different reason: Nobody really knows which deadline to work towards. And how many customers are still waiting for a car in the end.

The same question is of concern to economists these days. They are looking for indications as to whether the development of the economy will appear as a graph one day as V (which means a quick recovery), as U (a recovery after a long losing streak), or in the worst case as L: the long-term cementation of economic output a lower level. In their spring report, the leading economic researchers assume a V, but limit that the longer the corona-related standstill lasts, the worse it could be.

Rapid recovery unlikely

Ferdinand DudenhOffer, for example, assesses the situation as rather bleak, a renowned car expert who is now doing research at the University of St. Gallen. As a result of the corona crisis, the German auto industry is threatened with the loss of more than 100,000 jobs, the professor writes in his latest expert paper. According to the experience of the financial market crisis, it will take more than ten years before the drastic slump in demand is offset. However, DudenhOffer does not identify the problems in the supply chains as the cause, “but clearly in the lack of demand”: The auto industry has “a serious, long-term demand problem”.

Even at the management consultancy Oliver Wyman, the experts do not assume that there will be a quick recovery. After the economic and financial crisis from 2007 to 2009, it took several years for the markets to come close to the pre-crisis level.

Stefan Bratzel from the University of Applied Sciences in Bergisch Gladbach does not see the situation as completely black. He estimates that the global car market could drop 17 percent this year and 21 percent in Europe if the restrictions on public life remain limited to a maximum of eight weeks. But he also fears that there will be “significant distortions”.

In Bratzel’s view, a lot depends on the Chinese market, especially for German premium manufacturers, which has shown a clear upward trend in the past two weeks. The development could, however, be stopped suddenly if the number of corona infections increased again in the country of origin.

It is also difficult to calculate how long the uncertainty of the buyers will continue to have after the economy has started again. Many private customers who have had to tap into their savings as a result of the corona crisis or are even afraid for their old-age security may put off buying a new car for a long time. The same applies to companies whose reserves are used up after weeks of downtime.

Losses programmed

The strategists at the corporate headquarters are in a dilemma. All you have to do is choose the method by which you burn money: You can ramp up production as slowly as possible and wait for demand to pick up. This costs a lot of money because workshops and machine lines have to be paid off and maintained. Experts estimate these costs for the German industry giants Volkswagen, BMW and Daimler alone at more than 350 million euros – every day.

On the other hand, the planners can also calculate how quickly the stockpiles fill up if there is no demand for a long time even when the factories are at moderate capacity. Car expert DudenhOffer therefore expects ruinous price competition in the coming months.

To make matters worse, the automotive industry has completely different requirements than during the banking crisis of 2008 and 2009. Because it is weakened by the diesel scandal, it is in the midst of an expensive, exhausting change to e-mobility and digitalization. The switch to alternative drives is inevitable simply because the stricter EU CO2 limit values ​​that have been in force since January must be met. Violations can result in fines, which in individual cases can reach billions.

To the annoyance of environmentalists, the association of the car industry has already appealed to the EU Commission to stretch the tightening of the “Green Deal” requirements after 2030. “We have to evaluate the economic impact seriously before we talk about possible additional burdens,” said association boss Hildegard Muller.

It didn’t sound like a V.

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