The Role of the European Foundry Industry for the Automotive Sector during COVID-19

CAEF calls for a stimulation of demand while complying with the CO2-emission goals of the EU Green Deal

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COVID-19 remains not only a serious pandemic threatening personal health but has furthermore dragged Europe into an unprecedented recession. While companies had to deal with different degrees of shutdown for several weeks, ranging from enforcing strict hygiene standards to full plant shutdown in virus hotspots, the main problems still lie ahead. Like many industries, the foundry industry significantly depends on continuous production, not only to sustain economic efficiency but also to fulfil its environmental responsibility by operating facilities in the most efficient way.

However, current customers’ restraint from purchasing new vehicles reinforces the already grave financial distress. Sales across Europe have recently declined by high two-digit margins: In Italy and Spain by over 90 percent in March and in Germany, the key market in Europe, by more than 50 percent in May. From the 16.8 million tons of castings annually produced by CAEF member states more than half goes into new vehicles. In addition, the production of machines and other engineering components from casting adds to the share of car manufacturers.

Moreover, companies in our industry are vital for the regionality of the European industry sector. 70 percent of the approx. 4.700 foundries with 290.000 employees represented by CAEF are considered small- and medium-sized enterprises (SME), operating mainly in regions, already having suffered from industrial decline in recent years. In the light of a recent survey among German foundries, revealing that approx. 50 percent already suffer financial distress, survival of many important regional employers in these regions is at stake.

Without financial incentives dedicated to supporting private consumption, companies will run out of cash before the expected economic recovery. Insolvencies, unemployment of industrial workforce with very specialized qualification could be the immediate consequence. Therefore, the main question is how to stimulate demand without jeopardizing the ambitious but crucial CO2-emission goals of the EU Green Deal, where foundries are considered as “Enablers” to produce cast parts dedicated to sustainable industry activities.

We appreciate the yet to undertake policy measures that have been announced by national member states and the EU. The Commission´s extension of the State aid Temporary Framework, its application of fully flexible EU fiscal rules and its ongoing negotiations concerning possible fiscal measures to stimulate demand are highly acknowledged by CAEF and its member states. Along this path, we herewith encourage the European Council to ensure additional actions directed towards recognising the automotive sector’s critical role for fast and full economic recovery, preservation of regional employment, and ultimate responsibility for transforming mobility towards climate-neutrality:

  • To support the automotive sector in their ramp-up efforts after the shutdown, we ask the European Commission to develop a unilateral framework and coordinated measures across all member states. This is particularly important to preserve the friction free flow of materials and services and to support resilience in EU value chains.
  • While the purchase of electric vehicles is a move in the right direction, we need a technology-open premium. Promoting vehicles with hybrid or electric drives alone will only have a minor environmental effect. Unfortunately, industry and politics have not devoted enough efforts in products and components such as battery cells and a functioning charging infrastructure. The bottlenecks in battery cells lead to current delivery times of 6 to 8 months for new electric vehicles. Therefore, short-term promotion of e‑mobility has only a weak effect on fostering economic recovery and securing employment.
  • For the replacement of internal combustion engine cars with modern EURO 6 and above petroleum- and diesel-fuelled cars. If registered Euro 3 and 4 vehicles could be replaced by low-emission cars, a significant reduction in CO2 emissions could be achieved. Based on a fleet limit of 95 grams of CO2/km, the saving is as high as 43 percent. This significant reduction is thus also possible by promoting the purchase of state-of-the-art gasoline and diesel engines. The environmental effect would also be fostered by busses and trucks.
  • Investments into hydrogen-based mobility solutions – be it fuel cell or e‑fuels — are another important driver for the long-term success of the European industry and automotive sector. Without clear legislation, many companies will remain reluctant to invest into related technologies, hampering the transition towards climate-neutral mobility. In this regard, it is important to express the importance of supporting the hydrogen roadmap for busses and trucks and homogenizing public transport across Europe.
  • The foundry industry is committed to the Paris Climate Accord and considered as “Enabler” according to the EU taxonomy on sustainable finance. Through casting of wind energy turbines and thermal energy parts, mainly by using recycled materials, European foundries support the shift towards renewable energy. While strong investment decisions towards mitigating climate change have already been undertaken without governmental support, companies increasingly face the risk of insolvency. In this light many had to refrain from investment activities to mitigate this risk and to avoid immediate personnel lay-offs. The short-time-work schemes introduced in many member states are an important political measure, yet not sufficient in the long-term. We ask the European Council to develop a plan to support investments towards climate neutrality.

CAEF is aware of its duty to support the transition towards more sustainability by fulfilling its role as recycler for iron, steel, aluminium and other metals. No other materials have higher recycling rates than those. Up to more than 90 percent are reused for several applications. Without the foundry industry, the transition towards circular economy is not possible. As our industry is highly capital-intensive, many companies will face significant liquidity problems in the short- to medium-term. This might lead to insolvencies of many foundries.

After the crisis, a strong industry will be essential to ensure Europe stands ready to tackle the socio-economic consequences of the crisis and rekindle Europe’s economies. Therefore, CAEF and its national member associations aim to preserve as many foundries and jobs as possible through this significant crisis and to rebuild our economy.

We stand ready to work with the European Commission, national governments, and other stakeholders to transform the automotive sector towards meeting sustainability targets and upholding borderless mobility across Europe.