German Aid to Companies Speeds Up With $11.6 Billion in Requests

(Bloomberg) — Germany’s efforts to limit the economic damage from a prolonged coronavirus shutdown are gathering steam, as aid applications pour in and officials seek a path to restart all-important auto production.

Under a government program aimed to providing strapped businesses with financial liquidity, 2,500 companies have requested a total of 10.6 billion euros ($11.6 billion) in aid, according to state development bank KfW.

“In such a situation, in which companies are really experiencing a massive collapse in sales, there is certainly a measure of panic in the air,” said Guenther Braeunig, head of the bank, which is responsible for the loan and guarantee program worth hundreds of billions of euros, adding that he expects a “significant increase” in applications in the next few weeks.

As aid starts to flow, Chancellor Angela Merkel turned her attention to the country’s critical auto sector, speaking with executives and industry heavyweights late Wednesday on how and when to restart factories. The meeting comes amid growing concern that some cash-strapped suppliers may not survive the pandemic’s fallout.

The government may predict the extent of the hit later on Thursday, when Economy Minister Peter Altmaier gives a statement about the latest prospects for Europe’s biggest economy.

While the finance ministry has internally estimated that national output could shrink by 5% this year, the official government forecast is still for 1.1% growth.

The country can ill afford a prolonged shutdown of its car industry, which employs more than 800,000 people and is a key indicator of industrial health in Europe’s largest economy. Volkswagen AG currently burns through 2 billion euros ($2.2 billion) per week as most of its sites sit idle.

As VW, Daimler AG and BMW AG halt production, the disruptions have ripple effects on the hundreds of companies that make components from screws to seat cushions. Many of these firms are small, family-owned entities that lack deep financial resources, putting them particularly at risk.

Germany’s car-parts suppliers employ about 300,000 people and range from local outfits with a handful of employees to publicly-listed multinationals like Continental AG.

In the phone conference, Merkel and top industry executives discussed measures to minimize contagion risks and protect workers’ health once assembly lines resume churning out vehicles, according to people familiar with the talks.

German companies, including automakers, filed almost half a million applications for financial aid under a government wage-support program in March. That suggests about a fifth of the country’s workforce will have its hours reduced, according to JPMorgan Chase & Co. economist Greg Fuzesi.

While Germany has set up a series of measures to aid companies, the concern is the support won’t reach many smaller, cash-strapped suppliers quickly enough to keep them afloat.

These firms are critical for the finely-tuned supply chain and widespread bankruptcies would be a disaster, according to Continental’s Chief Executive Officer Elmar Degenhart.

If aid arrives even just a few days too late, managers have no choice but to file for insolvency as they otherwise risk becoming personally liable, Degenhart said.

“For many of these companies, it’s a black or white decision,” Degenhart told reporters on Wednesday, after Continental abandoned its earnings outlook over the coronavirus.

As cases rise, the federal government on Wednesday agreed with Germany’s 16 states to extend the nationwide lockdown until April 19, which will mean an additional burden for many companies.

Daimler’s top labor representative and supervisory board member Michael Brecht said Germany can probably cope with the current shutdown, but idling production for three months would mean the required aid to sustain the economy would “surge to unrealistic heights,” he told Stuttgarter Zeitung.

The maker of Mercedes-Benz cars has put the majority of German workers on state wage support and reduced working hours, but it continues critical projects like development of the flagship S-Class sedan that’s supposed to be rolled out toward the end of the year.

As cases rise, the federal government on Wednesday agreed with regional states to extend the nationwide lockdown aimed at slowing the spread of the coronavirus for another two weeks until April 19, which will mean an additional burden for many companies.

Still, there are some signs of improvement.

World Medical Association Chairman Frank Ulrich Montgomery said the virus may peak in Germany at Easter, but he cautioned against pegging an easing of restrictions to a specific date, “as if the virus knows what Easter is.”

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