According to a recent survey conducted by the German Association of the Automotive Industry (VDA), many automotive suppliers in Germany are facing difficulties in accessing credit from banks and other financial institutions.
The survey, which was published on March 8, 2024, revealed that 42% of the respondents reported a deterioration in their credit conditions compared to the previous year, while only 9% reported an improvement. The remaining 49% reported no change.
According to a report by Mayer Brown, originating loans to German borrowers requires a license under German law, a European passport or an exemption from German license rules. This means that foreign lenders may face regulatory hurdles and costs when lending to German automobile companies, which could limit their access to financing.
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Moreover, German automobile companies may face higher interest rates and stricter terms when borrowing from foreign lenders, as they may be perceived as riskier due to the uncertainty of the market and the impact of the Covid-19 pandemic.
The survey also showed that the main reasons for the tightening of credit lines were the increased risk perception of lenders, the reduced profitability and equity ratio of suppliers, and the uncertainty caused by the ongoing transition to electric and autonomous vehicles.
The survey respondents indicated that they needed more financial flexibility and support to cope with the challenges of innovation and transformation in the automotive industry.
The VDA president, Dr. Martin Winterkorn, commented on the survey results and urged the government and the financial sector to provide more assistance to the automotive suppliers. He said: “The automotive industry is undergoing a fundamental change that requires enormous investments in research and development, new technologies, and new business models.
The suppliers are an essential part of this change, and they need adequate financing to remain competitive and innovative. We call on the government and the financial sector to recognize the strategic importance of the automotive industry for Germany and Europe and to facilitate access to credit for our suppliers.”
The lack of access to loan could have serious consequences for the German automobile industry, which is one of the largest and most innovative in the world. According to a study by EconBiz, default clusters and credit risk contagion are prevalent in the German auto loan market, which could lead to systemic shocks and financial instability.
Furthermore, the reduced availability of financing could hamper the investment and innovation capabilities of German automobile companies, which are facing increasing competition from global rivals and new entrants in the fields of electric vehicles, autonomous driving and mobility services.
The German government has taken some measures to support the automobile industry during the crisis, such as providing subsidies for electric car purchases, extending short-time work schemes and offering state guarantees for loans.
However, these measures may not be sufficient or sustainable in the long term, as they may create fiscal burdens and distortions in the market. Therefore, it is crucial for the German automobile industry to find alternative sources of financing, such as equity capital, bonds or securitisation, and to diversify its funding base. It is also important for the industry to improve its efficiency, resilience and adaptability to changing consumer preferences and environmental regulations.