Benedikt Tratt of the Ludwig-Fröhler Institute in Munich has compared the effects of the COVID-19 crisis on the skilled trades sector with those of the financial crisis. In 2009, the skilled trades sector proved to be a stabilizing force for the overall economy. But those aren’t the only findings.
“Creating Flexibility”
STEIN: Mr. Tratt, in your view, how resilient is the skilled trades sector in 2020?
Benedikt Tratt: It’s difficult to make a general statement, as the individual trades have been affected by the crisis in very different ways. The construction sector, in particular, is fortunate to have had some very good years recently, and interest rates for debt financing are also favorable. Until the summer, most businesses were also operating at very high capacity. However, many business owners are indeed facing the challenges of crisis management for the first time in 2020. Solo self-employed individuals are particularly affected here because they are able to build up significantly fewer reserves—and have done so in the past as well.
STEIN: How do you assess the government’s measures for businesses during the COVID-19 crisis? Are they sufficient?
Benedikt Tratt: So far, Germany has mobilized more than 60 percent of last year’s gross domestic product. Internationally, that’s an outstanding figure. By comparison, in the U.S., the figure is only 10 percent of last year’s GDP. Furthermore, the government reacted very quickly and ensured that the money reached those who needed it promptly. For a while, processing by government agencies or through primary banks was a bottleneck, but that has largely been resolved. Similar to the financial crisis, companies with close relationships with their primary banks are also benefiting in 2020.
STEIN: The Ludwig Fröhler Institute also examined the impact of the 2008–2009 financial crisis on the skilled trades. What lessons can be drawn from this?
Benedikt Tratt: For the skilled trades, the financial crisis primarily affected corporate financing; in other words, collateral requirements increased, leading to a subsequent credit crisis. Policymakers should bear this in mind in 2020 to prevent a recurrence. Conversely, companies should keep an eye on their equity ratio. However, there aren’t too many short-term levers available here. Common tools include sale-and-leaseback arrangements for machinery or the sale of inventory, to the extent that this is possible.
STEIN: What should crisis-appropriate business management look like, now that it’s clear the pandemic will be with us for quite some time?
Benedikt Tratt: Create flexibility—because the operating environment continues to change almost every two weeks. Reduce fixed costs, which most companies affected by declining revenue have already done through the short-time work program. Effective contingency plans remain crucial: What happens if management or key employees are unavailable? If only one employee can operate a specific machine in the company, then I should be prepared in case that person is unavailable. Who will stand in for the owner? Who has access to the most important documents? And: Continue to organize the workforce into shifts so that employees come into contact with each other as little as possible. Just stay consistent here—even if it becomes exhausting and annoying over what has now turned out to be a long period of time.
STEIN: What recommendations do you have regarding relief measures and bridge loans?
Benedikt Tratt: As a general rule, we recommend taking advantage of these measures in a timely manner and not waiting until it’s too late. This means applying for short-time work as a preventive measure if necessary, even if capacity utilization is still sufficient at the moment. If it becomes apparent that liquidity could suffer, you should initiate external financing in a timely manner. Funds are being distributed now, but later on it will become significantly more difficult again to access liquidity and debt capital.
Read the full interview in STEIN 7/2020.
