VDA’s 9th SME Day in Gravenbruch – boosting suppliers’ drive for innovation
Wissmann calls on banking sector to improve conditions for loans
Frankfurt am Main/Gravenbruch, 6 May 2009. Speaking at the VDA's 9th SME Day in Gravenbruch Matthias Wissmann, President of the German Association of the Automotive Industry (VDA), once again called on public and private banks and credit insurers to live up to their responsibility for the economy in general. "In view of the shrinking export markets, our basically healthy supply companies are suffering a marked lack of liquid funding - not only for continuing research and development, but also for backing up current business." He added that the banking sector had reacted to the financial crisis by severely restricting the conditions for issuing loans and thus exacerbated the credit crunch for companies that are definitely competitive. "Both banks and credit insurers are currently planning to introduce worse conditions throughout our automotive industry and re-assessing the ratings of all the suppliers and the trailer and body industry. We will continue to resist such moves - in talks with banks, credit insurers and politicians," Wissmann stressed, adding that the aim was to achieve a differentiated view, and not to criticize the banking sector as a whole.
He stated that this assessment of the situation was supported in a survey by the Federation of German Industries (BDI), in which one in five of the companies questioned reported difficulties associated with new or longer-term loans, or more security being required for loans. Two thirds of the companies complained that the terms and conditions for loans were getting worse. Wissmann said, "This tallies with our day-to-day observations and the reports from our member companies."
He pointed out that the worldwide economic crisis was caused by the crunch on the financial markets and that the programs of loans and guarantees that the German Federal Government had introduced for the banking sector were there so that it could support manufacturing using these funds. "We are reminding banks and credit insurers of this," the VDA president said.
Wissmann went on to say that in April foreign demand for passenger cars had continued to fall. Foreign orders in April were 29 per cent down on the previous year, and in the first four months of the current year incoming orders from abroad slumped by a total of 31 per cent. This year so far there had also been a sharp fall in exports. And recovery is not expected in this year, he said.
This problematic situation was having particularly severe effects on the supply industry, which is strong on innovation and largely represented by small and medium-sized companies, making up three quarters of the automotive value-added, and which is therefore of key importance to Germany as a vehicle-producing country. "These companies make a huge contribution to the overall success of the German automotive industry. They are characterized by flexibility and competence in technology and, despite the general necessity for globalization, have close ties to their original locations," the VDA president emphasized. He said that the high levels of investment in research and development were largely financed by the SMEs out of their own capital. "But a 10 to 20 per cent drop in the sales of their customers, the vehicle manufacturers, reduces the suppliers' revenue by 20 to 40 per cent," Wissmann said, explaining the precariousness of the situation. Now that the flexible options of guaranteeing employment by means of working-time accounts and short-time working have been exhausted, we are seeing the first negative impacts on the workforce. "The aim must still be to keep these people employed in the companies," Wissmann underscored.
He added that there were also some visible positive signs, however. For example, the German Government had reacted quickly to the crisis and its first and second economic stimulus packages had provided important impetus. The period for which the short-time working allowance can be paid has already been extended to 18 months. Now it is to be extended to 24 months, and at the same time the state is to cover social security contributions for the working time that is not utilized after the first six months. The increases in KfW loans and European Investment Bank (EIB) funding for environmental and climate-friendly projects support current business activity as well as research and development. "We are drawing the attention of our member companies to these options and encouraging them to make greater use of this funding," Wissmann explained.
The VDA President also stated that the vehicle tax reform and the scrapping bonus had improved the general conditions for our manufacturers and suppliers. The domestic market is riding unexpectedly high. However, this may not compensate fully for the weak exports - three out of four cars produced in Germany are exported. "This means that we depend on the global economic recovery programs having the intended effects and above all that the US economy recovers. One thing is clear, however: this crisis will not remain without sweeping structural changes in our industry," Wissmann said.
At the VDA's SME Day Dieter Althaus, Premier of the German state of Thuringia, emphasized how important the automotive industry was to Germany and in particular to the Free State of Thuringia: "Thuringia is an automotive state. Ten per cent of its jobs in industry depend on vehicle production, and the Thuringian automotive industry generates one seventh of the turnover in the processing sector. The manufacturers and suppliers in Thuringia are also very successful internationally. Half of our revenue is earned abroad. And of course we are pleased if investment continues despite the crisis. At this time the top priority is to ensure the survival of the Opel plant in Eisenach with its large and highly qualified workforce."
VDA President Wissmann stressed, "Our strategic goal is to emerge from this crisis stronger than our competitors." The conditions necessary for this were clearly in place, he added. For example, at present the German brands are continually pushing up their market shares even on the difficult US market. "In addition, our industry is fully aware that research and innovation, and investment in the people behind technological progress, form the foundation for a successful future." In the year 2008 alone the German automotive industry invested almost 19 bn euro in driving forward the development of innovative, climate-friendly and efficient technologies.
Wissmann stressed: "The companies will continue this ‘technology offensive' because in times of crisis there is one thing that must not be cut, and that is the blood supply to the head! We have to make sure that during this critical phase cuts are not made in research and development, because this is the only way to ensure that the cars of the future will be developed and produced in Germany." He added that the results of these efforts were clearly visible. For instance, today German brands already have about 90 models on offer that consume less than 5 l of fuel to travel 100 km. And the companies are speeding up their progress in reducing the CO2 output of their new models. In 2007 the average CO2 value of all newly registered passenger cars in Germany was brought down by 1.7 per cent, and then in 2008 the CO2 values 2008 were reduced by another 2.9 per cent. In the first quarter of 2009 a reduction of 5.9 per cent had already been achieved in comparison to the same period last year.
Wissmann was confident that the German automotive industry - manufacturers and suppliers alike - would overcome the crisis: "Despite the severe headwind, if we stay on course we will be in a good position to continue investing and designing new, innovative products."