VDA survey: Automotive SMEs have high expectations of new German government’s SME policy

The 25th SME Conference of the German Association of the Automotive Industry (VDA) opened today in Bonn. This year's conference is titled "Perspectives on Automotive Value Creation." Over two days, business, academia, and politics will discuss the future of automotive value creation in keynote speeches, deep dives, and panel discussions.

"Times are challenging: International competition between locations is becoming increasingly fierce, geopolitical uncertainties are increasing, and protectionism is growing worldwide. Added to this is the transformation to climate-neutral mobility, which is demanding everything from the companies in the German automotive industry—and especially from the automotive SMEs. I am therefore all the more impressed every day by the innovative strength, determination, passion, and high investment with which companies are driving the transformation to the climate-neutral and digital mobility of tomorrow," VDA President Hildegard Müller said at the opening of the VDA SME Day.

Gitta Connemann MdB, Parliamentary State Secretary at the Federal Ministry for Economic Affairs and Energy and designated Federal Government Commissioner for SMEs, will give a keynote speech on the first day of the conference. " SMEs are the backbone of our economy. They secure jobs and training opportunities in the regions. And they are a driver of innovation and technology – also for the automotive industry. SMEs, especially in the supplier industry, form a value chain with corporations. They work hand in hand for individual mobility in Germany, Europe, and the world. The Federal Government knows that to ensure this remains the case, innovation and competitiveness must be restored and secured for the long term. To achieve this, we will reduce energy costs and corporate taxes. We will reduce bureaucratic burdens, promote investment in future technologies, and drive forward digital transformation. We are also committed to resilient supply chains and a strengthening of the European single market. With political support, our SMEs will assert their position on the global market. Because one thing is clear: our SMEs can do anything if their power is unleashed," Connemann said.

In her speech, Müller also addressed the results of a recent survey that the VDA has been conducting since spring 2020 among automotive suppliers (Manufacturer Group III) and medium-sized manufacturers of trailers, bodies and buses (Manufacturer Group II).*

The survey shows that 42% of companies consider their current situation to be bad or even very bad, while 39% view it as neutral. Only about one in five companies (19%) rates its current situation as good or very good. However, when looking at expected developments over the next 12 months, a slight sense of optimism prevails: The proportion of companies that expect their situation to improve is larger than the proportion that expect their situation to worsen. Around 31% expect their economic development to improve, 26% expect it to worsen. 43% expect no change.

There are also slightly positive assessments of the coalition agreement: Significantly more companies rate it positively (26%) than negatively (12%). However, the majority of companies (62%) are neutral toward the coalition agreement. Confidence prevails regarding location decisions for SMEs: 63% of companies believe that the new federal government will improve the location conditions for industrial SMEs in Germany. One-third (33%) expect no improvement, and 4% of companies cannot assess this.

"The hopes that the automotive industry's medium-sized businesses place in the new federal government must serve as both an incentive and a commitment. One thing is clear: the political pressure to act is high, because the competitiveness of Germany as a location has eroded in recent years. Competitiveness and the attractiveness of the location must therefore be the guiding principles of the new federal government," VDA President Hildegard Müller said.

One in five companies wants to cut investments

In the survey, just over three out of four companies (76%) stated that they are postponing, relocating, or completely canceling investments they had originally planned in Germany. Almost one in four companies (24%) is planning to relocate investments abroad. Their relocation destinations are other EU countries, Asia, other countries in Europe, and North America (in that order). 

The proportion of companies planning to relocate has thus fallen compared to the last survey, which was conducted in February of this year (29%). In contrast, the proportion of companies planning to cancel investments has risen from 14 to 20%. Only 1% of companies still state that they intend to increase their investments in Germany in light of the current situation.

"These figures are alarming. We as the German automotive industry want to preserve jobs and prosperity, and we want to continue manufacturing our products and cars here in the future. But for this to happen, something must happen in Germany as a business location. The federal government must now focus on everything that creates growth—and do so decisively and swiftly," Müller said.

Investment activity is most frequently constrained by the sales situation and sales expectations. 58% cited this as the main reason. In the European market, with its still low sales volumes - domestic car production, for example, is about 20% lower than pre-crisis levels - expansion investments are not economical; market growth is taking place elsewhere. The second most common reason is the cost situation in Germany (16%), which also influences renewal investments. The third reason cited is financing conditions (15%).

Another survey result also highlights the challenges surrounding financing: In the past three months, 40% of the companies that participated in the survey have conducted loan negotiations with banks. 69% of these companies stated that the banks had been restrictive (e.g., higher interest rates and/or collateral, shorter loan terms) or even refused to lend. One in five companies (20%) perceived the banks as neutral. Only about one in ten companies (11%) found the banks accommodating or even very accommodating in loan negotiations.

"Those who are denied access to capital find it difficult to invest and cannot position their companies for the future. Therefore, financing is one of the key issues for the supplier industry in Germany. To successfully master the transformation, medium-sized automotive suppliers need more than just traditional bank loans; they need genuine transformation financing and support. In particular, regulatory levers for banks at the national and EU levels must be reassessed and adjusted. They must be harmonized so that automotive suppliers can be even better supported and understood by their banks during the transformation. Because there is no such thing as a single supplier; differentiation is important," emphasizes Isabelle Kirschbaum-Rupf, VDA Board Member, Spokesperson for the VDA SME Forum, and shareholder of Rupf Industries GmbH.

"The topic of securing financing is a burning issue for companies, making the exchange on this topic all the more valuable. That's why we've included the topic on the agenda of this year's VDA SME Day and dedicated a separate panel to it," Kirschbaum-Rupf continued.  

Red tape still No. 1 challenge

In the survey, 88% of companies reported being heavily or very heavily burdened by bureaucracy. This continues to be the number one challenge for medium-sized automotive companies. Worryingly, 42% of companies stated that their business operations are currently negatively impacted by problems with road infrastructure – broken or closed bridges, lengthy construction projects, detours, etc.

"Poor infrastructure is becoming an increasing problem for companies in Germany. It is therefore good that the new federal government is now addressing the issue. But one thing is also clear: With the special fund for infrastructure, the pressure on politicians is growing to ensure faster procedures and more efficient structures so that the money actually reaches roads, railways, and bridges," VDA President Müller emphasized.

The survey shows that companies continue to value the advantages of Germany as a business location. In their view, the industrial network, skilled workers, dual training, and political stability are the main advantages.

Suppliers are diverse

Further survey results demonstrate the diversity of the automotive supplier landscape: 35% of companies stated that their business activities are independent of the drive type, and another 45% have orders in both electromobility and combustion engine technology. Only around 10% of companies are exclusively focused on combustion engine technology, and 3% are exclusively focused on electromobility.

The proportion of companies suffering from a shortage of skilled workers and labor continues to decline, now at just 31%. Accordingly, only 25% of companies report having difficulty meeting their short- and medium-term demand for skilled workers. These figures are an alarming signal, as they show that the weak overall economic development, especially in manufacturing, is increasingly having an impact on the labor market.

Last but not least, the transformation toward climate neutrality and digitalization is causing job cuts despite a shortage of skilled workers and labor. More than half of companies (57%) report that they are currently reducing their workforce in Germany. However, 10% report that they are increasing their workforce, and in 33% of companies, employment figures remain constant.

 

*The survey was conducted from May 5 to 15. 136 companies participated. This provides the VDA with representative information on the current situation and prospects of the automotive industry.