Coronavirus - Future of German Foundries

Expert Commentary Part 1 Coronavirus - Future of German Foundries

23.03.2020 | Editor: Nicole Kareta

The effects of the coronavirus are already evident for many German foundries. According to expert Johannes Messer, government loans and new strategies could be part of the solution. Read the complete statement!

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"Despite all cost adjustments the company's results will collapse sharply."
(Source: gemeinfrei / Pixabay )

Expert Series - Focus on Germany

How exactly does the coronavirus affect local foundries and how are the individual countries prepared for the crisis? In the article series, our experts give a commentary on the current situation in their country as well as action recommendations for the industry. In the first part of the expert series, Johannes Messer provides information about the situation in Germany caused by the coronavirus.

The current spread of the coronavirus is dramatically worsening the situation of the predominantly medium-sized foundries. As a result, short-term crisis management must now have top priority, with the aim of securing liquidity. In addition, the focus is on strategic topics such as customer loyalty, finding partners and flexibility just to mention a few of them. The management is thus challenged to show the way forward for the company's future.

Credits Compensate for Losses

Despite all cost adjustments - probably mainly in the variable range - the company's results will, however, collapse sharply. This is where government loans can help. The measures currently planned by the state to protect companies from the threat of insolvency include corporate loans and extension of legal deadlines for filing for insolvency. This is to be welcomed at first. The loans are necessary to offset the losses currently incurred by the companies. For the most part, the companies will not be in a position to repay these loans in full within a foreseeable time frame. One solution could be to give special treatment to loans that have only been used by the companies to offset losses during the crisis. The companies could, for example, be relieved of energy costs and corporate taxes. These reliefs could then be used to repay the loans.

Almost 40 % of the companies surveyed had already introduced short-time working or were planning to do so in the immediate future.

Entire Value Chain Changes

Experts already agree that the extent of the crisis will be serious. There will be major changes within the entire value chain (foundry products). Companies will disappear from the market, not only through insolvencies. Foundries must now rethink their medium and long-term strategy. This is the only way to ensure that the opportunities after the crisis can also be exploited.

Automotive Industry Particularly Affected by Crisis

In addition to foundries, the automotive industry also has to struggle with the consequences of the coronavirus. Even before the spread of Covid-19, the automotive industry was already in a multi-dimensional field of tension, here one can figuratively speak of a pre-existing disease. The coronavirus is now being added to this, which has greatly increased the risk potential. The profit loss due to the decline in production cannot be compensated by industries outside the automotive industry in the short term, but probably not in the long term either. One thing is certain: once the crisis is over, the entire automotive industry will try to make up for the losses incurred. Despite the hype surrounding e-mobility, today's drive systems will certainly still play an important role here.

The protective measures against the coronavirus led to inefficiencies in production and further pressure on the profitability of the sites.

Due to the strong dependence on the automotive industry, the challenges and risks associated with the effects of the coronavirus are particularly high. On the other hand, there are opportunities. In Europe we have very well educated people with an enormous amount of know-how. This is a chance that Germany and the whole of Europe should seize.

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