Chancellor Angela Merkel’s government will extend cash bonuses for purchasing electric-powered vehicles until 2025, offer incentives to replace aging trucks and help suppliers invest in new technology.

“We are all aware that the industry is going through a difficult phase that affects hundreds of thousands of jobs,” Economy Minister Peter Altmaier said Tuesday in Berlin. “We know this isn’t just a question that touches large carmakers but rather a question that deeply affects mid-sized companies,” which make components.

Carmakers and parts suppliers, which employ nearly 800,000 people in Germany, were spending heavily on electric cars before the pandemic hit. That left companies exposed to the sudden drop in demand from the fallout. Auto production plunged 97% in April and has yet to recover to pre-pandemic levels, with curbs to stem the latest wave threatening to further sap demand.

Figures on European car sales published Wednesday underscored the sector’s woes. New-car registrations dropped 7.1% in October, according to the European Automobile Manufacturers Association. Aside from a small gain in September, sales have been in decline all year and are down 27% through the first 10 months.

In a statement after Merkel took part in talks with auto executives Tuesday evening, the government said that the car industry still needs state support to deal with the pandemic fallout and the “great challenges” of long-term structural change, despite evidence of “the first signs of recovery.”

“The transformation in the sector must be underpinned along the whole value chain,” the government said.

Auto Aid

Highlights of Germany’s support for the automobile industry:

1 billion euros to extend electric-car buying incentives1 billion euros for a cash-for-clunkers programs for trucks1 billion euros for a fund to support technology investment by suppliers2 billion euros from existing stimulus funds to help suppliers adapt production lines

Germany’s carmakers, once world leaders in automotive innovation, have been playing catch up on electric cars. Volkswagen AG, Daimler AG and BMW AG combined are valued at less than half of Tesla Inc., which is building a factory just outside Berlin to challenge the German car giants on their home turf.

The struggles extend to hundreds of parts makers -- companies often specialized in combustion-engine components and with fewer resources than global carmakers. Even big suppliers like Continental AG are suffering. Europe’s second-largest parts maker has widened cuts this year and last week forecast that profitability will shrink for the fourth time in five years.

“The car industry isn’t just any branch of industry. It’s the workhorse,” Labor Minister Hubertus Heil said. “This is about the state, the industry and unions working hand in hand.”