(Bloomberg) — Chancellor Angela Merkel and German auto-industry officials grappled with how and when to restart the country’s sprawling factory network amid concerns that some cash-strapped suppliers may not survive the damage from the coronavirus pandemic.In a phone conference late Wednesday, Merkel and the officials discussed measures to minimize contagion risks and protect workers’ health once assembly lines resume churning out vehicles, according to people familiar with the talks.Participants included Hildegard Mueller, the head of the German cars lobby VDA, and Joerg Hofmann, leader of the IG Metall labor union, said the people, who asked not to be identified as the talks aren’t public. A government spokesperson confirmed that the phone meeting took place but declined to comment further.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 said it currently burns through 2 billion euros ($2.2 billion) per week as most of its sites sit idle.Damage to the European auto industry is piling up as carmakers from Volkswagen to France’s Renault SA shutter factories after governments restricted public life to stem the spread of Covid-19. Latest data from Spain showed a 69% drop in car registrations in March to below the worst levels of the financial crisis.The disruptions have ripple effects far beyond large carmakers, affecting 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.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.The country is facing the worst recession since the global financial crisis, the government’s economic advisers predicted earlier this week. Even if most business and movement restrictions are lifted in mid-May, output could shrink by 2.8% this year, they said, urging policy makers to communicate criteria for ending restrictions and plans to stimulate demand to help exit the crisis.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. Widespread bankruptcies among those firms would be a disaster because they’re critical for the finely-tuned supply chain to restart, according to Continental’s Chief Executive Officer Elmar Degenhart.The companies have already been wrestling with the shift from the combustion engine to electric vehicles, resulting in tens of thousands of job cuts announced well before the coronavirus crisis escalated. The problem now is that smaller suppliers typically don’t have access to extensive credit lines to secure liquidity.If state aid arrives even just a few days too late managers of smaller businesses 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.(Updates with details on German economy beginning in eighth paragraph)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.



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