A German government agency is footing the bill for up to 67 per cent of furloughed workers’ wages © Julian Stratenschulte/dpa

European manufacturers including Volkswagen, BMW and Daimler stand accused of displaying the “ugly face of capitalism” for planning to hand €7.5bn to investors while relying on public funds to pay more than 200,000 workers.

Angela Merkel’s junior coalition partner, the SPD, has criticised Germany’s three biggest carmakers and car parts supplier Continental for preparing to pay dividends for profits made before the coronavirus crisis hit.

The German companies have put tens of thousands of their workers on the country’s Kurzarbeit scheme, in which the Federal Employment Agency foots the bill for up to 67 per cent of furloughed workers’ wages.

Sportswear group Adidas also has more than 1,000 employees in the programme.

The companies will make the dividend payments once they are approved at shareholder meetings, some of which have been delayed because of the Covid-19 outbreak.

“The short-time work allowance is state aid,” Carsten Schneider, the chief whip of the Social Democrats in the German parliament told the Financial Times. 

“Those who rely on state aid cannot simultaneously distribute profits to shareholders,” he said, urging all companies that receive the subsidy to stop paying dividends immediately.

“This is the ugly face of capitalism,” he added.

Dietmar Bartsch, the head of the opposition Die Linke faction in the German parliament, also called on the government to “protect taxpayers from the ‘ingenuity’ of corporate executives".

“If listed companies want to take advantage of forms of state aid, dividend payments must be stopped and bonus payments to board members must be cancelled immediately,” he said.

“Taxpayers are not there to act as comprehensive insurance for the riches of shareholders and board members.” 

VW and Daimler declined to comment, although VW chief financial officer Frank Witter last week said the company, which had pledged to pay a substantially-increased dividend of €6.50 per share for 2019, would “monitor the situation as developments are progressing”.

BMW said it was “laying the foundation stone” to be able to get back on track after the crisis.

“This includes a balanced strategy that takes the interests of all stakeholders into account. Reliability towards our investors creates trust and maintains the attractiveness of BMW AG as an investment.”

Continental said a decision on dividends would be taken by its supervisory board. As with many listed German companies, employees’ representatives occupy half of the board seats. 

Adidas said the only decision it had taken so far was to postpone its annual meeting, adding that it was looking at many different measures to safeguard the company.

Germany’s wage subsidies for workers who have had their hours temporarily reduced are funded by mandatory contributions from employers, with any deficit being covered by the taxpayer. Companies including VW voluntarily top-up the state payments.

By the end of 2019, the Federal Employment Agency was sitting on close to €26bn in reserves. The German government expects that 2.35m workers will use the wage subsidies during the Covid-19 pandemic compared with 1.4m during the financial crisis a decade ago. 

Lufthansa, which has enrolled almost 90,000 employees in the government programme, scrapped its dividend last month, while travel group Tui was forced to scrap payouts to shareholders after it received a €1.8bn emergency liquidity line guaranteed by the German government.

Commerzbank ditched its dividend after banking regulators urged European lenders to freeze payouts during the crisis. 

Even shareholder activists warn companies should tread carefully with regard to dividends. “Paying out fat dividends now is not compatible with asking for state aid later,” said Marc Tüngler, managing director of the German Shareholders’ Protection Association, which represents retail investors.


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