Reopening the economy: As Germany's car dealers are discovering, the road out of lockdown is not smooth

What if you opened a car showroom and nobody came?

That’s the dilemma facing many car dealers across Germany, who were given the all-clear to reopen this week or next—the timing depends on the authorities in specific states.

More than a month after the coronavirus lockdown forced them to suspend sales, auto showrooms—like small shops and certain retail sectors such as florists and DIY stores—are largely open to the public again. But customers are few and far between.

“Since Monday, I think we have had 10 customers in the showroom,” says Joachim Niersmann, manager of La Linea showroom in Saarbrücken, near the German border with France, on Wednesday afternoon. In better times, the normal footfall would have been on the order of 20 to 25 customers a day.

“Nobody has come by this morning,” says Rasoul Behkalam, owner of Damax Automobile Berlin in the capital’s Wilmersdorf district, also on Wednesday—the Berlin authorities only allowed limited store reopenings for the first time on that day. “People are distancing. We don’t expect much business this year.”

The dealers’ experience highlights one of the many problems facing businesses even once they are allowed to reopen—customer confidence around Europe remains desperately low as the scale of the economic fallout becomes ever more apparent, and as uncertainty remains over the trajectory of coronavirus infections.

The engine of the German economy

In the case of the 435 billion euro German auto industry, still reeling from the diesel scandal and ever-tightening emissions standards, the problem is particularly acute.

“As before the virus, customers don’t know what they have to buy: hybrids or electric vehicles or diesel,” says Niersmann. “I think it will be better in coming times, but this week they don’t want to make a mistake with the car, or with the virus.”

Germany’s Association of Independent Auto Dealers (BVfK) sounds more upbeat about the situation, insisting that ever more customers are visiting showrooms—but conceding that numbers are down since before the crisis struck. “It’s very difficult, but we are optimistic,” says Ansgar Klein, the trade group’s chairman.

There’s no mistaking how bad the crisis has been for Germany’s auto sector, and indeed for the wider economy—IHS Markit’s economic-activity statistics, released Thursday, showed a record low that far outstripped analysts’ fears. At the start of April, Germany’s vehicle licensing authority said March car sales were down 38% year on year. In March, industry veteran Ferdinand Dudenhöffer of the University of St. Gallen in Switzerland told Fortune that the Western European market for passenger cars would take around a decade to return to pre-crisis levels.

Unlike most factories in Germany, which have kept running thanks to the imposition of strict hygiene and organizational measures, the country’s car factories largely shuttered in mid-March and are only now starting to fire up again. Daimler, for example, this week reopened powertrain plants in Hamburg, Berlin, and Stuttgart, and its Kamenz battery factory near Dresden.

‘Let’s not gamble’

Germany’s federated nature has led to some inconsistency in the lifting of restrictions. Chancellor Angela Merkel, whose administration signaled the cautious relaxation of coronavirus restrictions a couple of weeks back, warned Thursday that some states could be moving too quickly as they try to get their economies humming again. “Let’s not gamble what we’ve achieved and risk a setback,” she said. “We are not in the final phase of this pandemic; we’re just at the beginning.”

BVfK chairman Klein is also critical of the way state authorities have handled auto showroom reopenings in piecemeal fashion; for example, the state of Saarland gave the all-clear for last Monday, Berlin for Wednesday, and Bavaria for Monday next week. “Unfortunately this is very inconsistently organized,” he says. “The problem lies in [Germany’s] federal structure. It would be better if the [federal] government could prescribe these things uniformly.”

Spain, Italy, and Denmark enter ‘Phase 2’

How to reopen the economy has become a big debate beyond Germany.

In Spain, which has imposed one of the tightest lockdowns in Europe, Prime Minister Pedro Sánchez has warned the reopening will be “slow and gradual,” and if there are signs of new outbreaks, the “de-escalation” may be reversed.

The hard-hit country, which has the third highest confirmed COVID-19 death toll in the world at over 22,000, allowed some “nonessential” businesses—including factories and construction sites—to reopen after Easter. And, beginning Sunday, children up to 14 years of age will be allowed to leave their homes for the first time in six weeks, to take walks of up to an hour with an adult. (Yes, the rules are that precise.)

On Wednesday, Spain extended its “state of alert”—which gives the government the power to impose the lockdown—until May 9.

Meanwhile, Italy’s Prime Minister Giuseppe Conte took to Facebook earlier this week to alert Italians that the lifting of Europe’s longest ongoing lockdown is imminent. “A reasonable expectation is that we will apply it from May 4,” he said on Monday.

So far, details have been scant on what “Phase 2,” as it’s being called in Italy, would look like.

After Easter, the government gave the green light to garden shops, children’s clothing retailers, and bookstores. Across the street from L’Università degli Studi Roma Tre, one of Rome’s biggest universities, bookshops opened their doors this week to few customers. With classes suspended indefinitely, however, students are staying home; the few people walking past the bookshops were all donning masks and were in no mood to browse for new titles.

One European country that’s ahead of most of its neighbors is Denmark, where the government reopened schools on April 14, a move that caused a bit of a stir. Groups of parents protested the move, even forming a Facebook group called “My kid is not going to be a guinea pig.”

The Danes aren’t the only ones advocating a go-slow return to normal life.

Germany’s business lobby is calling for the reactivation of the country’s economy to take place with extreme caution, lest it trigger a second wave of COVID-19. “A new shutdown would have unforeseeable consequences for the country,” said Dieter Kempf, president of the Federal Association of German Industry, last week.

Additional reporting from Ian Mount in Madrid and Bernhard Warner in Rome.