Frankfurt am Main – The automotive industry is in the midst of a profound transformation. Transformation and digitalization are driving changes in products and processes, and the COVID-19 pandemic has also triggered a severe economic downturn. This dual crisis—both structural and cyclical—is putting small and medium-sized suppliers in particular under pressure. On Tuesday, works council members from supplier companies will discuss potential paths out of this crisis at a virtual conference jointly organized by IG Metall and the Hans Böckler Foundation.
“We must set the right course now,” demands Jörg Hofmann, President of IG Metall, on the occasion of this conference. “For IG Metall, preserving industrial structures is the top priority. Industry is not only a driver of innovation and employment; good wages are also the foundation of our prosperity. If that foundation dries up, an important basis for tackling climate change will be lost.”
To manage and shape the transformation in the automotive industry—and particularly among suppliers—IG Metall has put forward proposals that include three elements: a transformation fund, the Best Owner Group, and the promotion of transformation clusters.
The transformation fund is intended to provide suppliers with private capital to bolster their equity. Such a fund can stabilize the financial situation, protect companies from insolvency, and open up opportunities for innovation and investment in new business models, as well as the necessary investments in development, fixed assets, and employee training. Transformation funds could be financed with funds from the Kreditanstalt für Wiederaufbau (KfW) or the Fund for the Financing of Nuclear Waste Disposal (KENFO) on standard market terms. However, the fund should also be open to other institutional investors who wish to support sustainable industrial development through their involvement. In IG Metall’s view, vehicle manufacturers also have a responsibility to make a financial commitment here.
The Best Owner Group focuses on investments in supplier companies that rely on internal combustion engines and will likely have to downsize in the foreseeable future because they lack alternative products. However, even if internal combustion engines eventually become a thing of the past, there will still be a lingering demand for replacement parts for many years to come. With capital from pension funds, insurance companies, family offices, and companies that join the BOG under this model, suppliers will receive professional support until the production of internal combustion engine parts is phased out. This allows for the workforce to be transitioned in a socially responsible manner over a long period of time, and employees can be trained for future-proof roles. In the BOG model as well, the OEMs—that is, the manufacturers—have a responsibility as customers of the suppliers. They should contribute appropriate funds to the fund and guarantee long-term purchase agreements. In addition, policymakers should also examine, in the context of this proposal, whether and how they can facilitate access to KfW or KENFO funds that could be channeled into the fund.
Regional transformation clusters are an element of a preventive structural policy in regions that are disproportionately characterized by supplier companies. This transformation carries the risk of destroying successful automotive clusters comprising suppliers, service providers, research institutions, and manufacturers—with serious consequences for value creation and employment in these regions. A prerequisite for transformation clusters is that corporate and regional stakeholders cooperate to find ways to secure industrial jobs. The federal and state governments should provide the necessary funding. To this end, a portion of the two billion euros allocated to promote innovation among suppliers—as part of the federal government’s economic stimulus package adopted in June—can be used. What applied to the phase-out of coal also applies here to these regions, which can only be protected from becoming regions of poverty through a consistent transformation of their industrial structures.
Approximately 310,000 people are employed in the 1,800 supplier companies. They generate 70 percent of the value added in the entire automotive industry. In 2019, the industry’s revenue exceeded 80 billion euros, with more than half of that coming from the domestic market. In contrast, compared to the same period the previous year, revenue in 2020 plummeted by a good quarter, and new orders have declined significantly.
Further information and press photos by Jörg Hofmann
