Germany has long been renowned for its thriving car industry, home to the esteemed “Big Three” brands – Volkswagen, Mercedes-Benz, and BMW. These companies have been lauded for their exceptional performance, groundbreaking innovation, and meticulous engineering. However, the once-flourishing German motor industry is now facing significant challenges. As the country heads into federal elections with a struggling economy, the question arises: how can this vital sector navigate its way back to prosperity?
Upon arrival in Wolfsburg, Lower Saxony via train, one is immediately greeted by the imposing Volkswagen factory. With its massive structure adorned with a prominent VW logo and surrounded by towering chimneys, the facility commands attention along the canal that winds through the city. Spanning 6.5 square kilometers, the complex stands adjacent to the Autostadt, a unique automobile-themed park dedicated to VW, Europe’s largest car manufacturer. Nearby lies the Volkswagen Arena, a notable sports stadium.
Wolfsburg mirrors mid-20th Century Detroit in its layout – evolving not simply as a city with a car plant, but rather as a factory around which a city has thrived. With approximately 60,000 individuals from the region employed at the plant and a local population of around 125,000, the factory plays an integral role in the community. The sentiment among locals is that even if one doesn’t work within the factory, many friends and acquaintances do, including former classmates.
Dieter Landenberger, Volkswagen Group’s resident historian, describes Wolfsburg and Volkswagen as inherently intertwined. A sense of pride permeates the plant, symbolizing Germany’s post-war reconstruction era and economic resurgence of the 1950s. While the factory’s legacy is steeped in history, it also reflects the challenges facing the broader German car industry today.
Recent data indicates a decline in production output, with the Wolfsburg plant operating well below its full capacity. This trend is mirrored across various car factories in Germany, with overall car production dropping from 5.65 million in 2017 to 4.1 million in 2023. As Germany approaches the upcoming elections, the troubled state of the car industry takes center stage, given its significance as a prideful national asset and a key economic driver.
A pivotal sector within Germany’s manufacturing landscape, car-making contributes significantly to national wealth, accounting for about a fifth of manufacturing output and approximately 6% of GDP when factoring in the supply chain. Directly employing around 780,000 individuals and supporting millions of additional jobs, the industry’s vitality is indispensable to the country’s economic fabric.
Beyond the production decline, German car brands have experienced a notable drop in sales. From 2017 to 2023, Volkswagen’s car sales decreased from 10.7 million to 9.2 million units, reflecting the broader challenges faced by the industry. Addressing these issues and revitalizing the
In company reports, the sales of BMW decreased from 2.46m to 2.25m, and Mercedes-Benz’s sales dropped from 2.3m to 2.04m. The Big Three car manufacturers all witnessed a roughly one-third decline in pre-tax profits during the first nine months of 2024. They have cautioned that their annual earnings will fall below previous estimates. The shift towards electric vehicles has demanded significant investments, but the market growth has not met expectations, with foreign competitors gaining strength. The looming threat of tariffs from the US and other governments adds to the challenges faced by the industry.
Simon Schütz, a spokesperson for the German Automotive Industry Federation (VDA), describes the automotive industry as facing multiple crises continuously. According to Franziska Palmas, a senior Europe economist at Capital Economics, car sales in Europe have been on a decline since 2017 due to various factors such as the pandemic, energy crisis, and increased longevity of vehicles. The transition to electric cars following the 2015 diesel emissions scandal has led to a technological revolution within the industry.
The EU and European governments are moving towards phasing out petrol and diesel cars, prompting manufacturers to invest billions in developing electric models and new production lines. Despite electric cars accounting for a significant portion of sales, their market share has not expanded as anticipated. The sudden removal of subsidies for electric car buyers in Germany in late 2023 contributed to a sharp 27% decline in electric car sales within the country, further challenging German firms.
Concerns also arise from the high operational costs in Germany, including generous pay and benefits for auto sector workers. Labor costs in the German auto industry are notably higher compared to other countries, posing a significant challenge for German manufacturers in a competitive global industry.
The challenges faced by Germany’s domestic car industry intensified following Russia’s invasion of Ukraine. This disruption cut off Germany’s previous access to affordable Russian gas, just as the country was transitioning away from nuclear power. As a result, energy prices surged, remaining significantly high compared to global standards. The automotive industry, from major car manufacturers to suppliers of components, experienced a spike in costs due to the elevated energy prices, impacting their competitiveness in the international market.
The pressure culminated last year, prompting Volkswagen (VW), a company deeply rooted in Germany, to take drastic cost-cutting measures. In a surprising move, VW proposed a 10% pay cut instead of the expected pay raise during negotiations with union representatives. The company even raised the possibility of closing up to three of its German factories and revising long-standing job security agreements. Despite resistance from unions and politicians, the plan to shut down factories was eventually abandoned, signaling a significant shake-up in the industry.
Other car manufacturers, such as Mercedes-Benz and Ford, also implemented cost-saving strategies to navigate the challenging market conditions. Mercedes-Benz aimed to save billions annually through a cost-cutting initiative, while Ford announced job cuts in its German operations. Additionally, with the European market saturated, manufacturers have been seeking growth opportunities outside the continent, particularly in markets like China.
Overall, the German car industry is grappling with a complex set of challenges that require strategic adjustments to remain competitive and adapt to evolving global dynamics.
For some time, the rising middle class had a strong demand for luxury European vehicles in China. Volkswagen (VW), Mercedes-Benz, and BMW all established local factories to cater to this demand. However, this growth trend is now slowing down. The three major automakers have experienced declining sales recently, with VW seeing a 9.5% drop, Mercedes-Benz 7%, and BMW 13.4% in 2023 compared to the previous year. Their collective market share in China has decreased to 18.7% from a peak of 26.2% in 2019, attributed to a sluggish Chinese economy, waning interest in expensive foreign cars, and the emergence of local electric car brands.
Mark Rainford, founder of the Inside China Auto site, notes that Chinese brands have significantly improved their reputation and appeal, challenging the dominance once held by Western brands associated with quality and trust. The Big Three acknowledge the impact of these trends on their earnings.
Chinese automakers are also targeting the European market, benefiting from lower operating costs due to reduced labor expenses in China and as pure EV manufacturers, avoiding legacy costs associated with transitioning to electric vehicles. Additionally, Chinese brands receive substantial government subsidies, allowing them to offer cars at competitive prices. In response, the EU imposed additional tariffs on Chinese-made EVs to level the playing field.
German automakers objected to the EU tariffs due to concerns about potential Chinese retaliation affecting their exports. They now face the risk of new protectionist measures from the US administration, which could include tariffs on EU-imported cars. The industry, heavily reliant on exports, views rising protectionism as a major threat.
Analysts suggest that unforeseen challenges, coupled with complacency among German car manufacturers, have intensified pressures on the industry. The shift to China and the profits repatriated to Europe masked labor cost issues and empowered labor unions. The industry, traditionally export-focused, is now grappling with the repercussions of global trade tensions.
Reviving their fortunes presents a critical challenge for German automakers and the wider economy. While some believe Germany’s lack of competitiveness, both in cost and technology, hinders progress, others see opportunities in innovation and globalization. Dr. Ferdinand Dudenhöffer emphasizes the need for embracing new technologies emerging from China, while Simon Schütz remains optimistic about the industry’s future, provided it receives adequate support.
As the upcoming elections draw closer, the automotive industry in Germany stands at a pivotal moment, grappling with the crucial question of where the future of jobs will lie. Prominent voices within the industry are divided on the path forward, each offering their own vision for securing the sector’s prominence in the global market.
In a fervent declaration of confidence, one industry insider boldly proclaims, “Our automotive industry will be world-leading, I am sure of that.” However, the underlying uncertainty lingers – will Germany continue to be the epicenter of automotive innovation, or will the tide shift, leading companies to seek opportunities elsewhere?
For union representative Steffen Schmidt, the answer lies in a return to Germany’s core industrial values. Emphasizing the necessity of reclaiming a leadership position in innovation and technology, Schmidt asserts, “We have to become a leader in innovation and technology again. Then we can keep high pay and good conditions for workers.” This call for a revitalization of traditional strengths serves as a rallying cry for maintaining the industry’s competitive edge.
Looking towards the horizon, Schmidt outlines a clear directive for the incoming government: “Invest, invest, invest. In infrastructure, in technology, in green energy, and in education.” The emphasis on strategic investment as a catalyst for progress underscores the urgency of fortifying the industry against external pressures and internal challenges.
The implications of these deliberations are keenly felt in the heart of industrial hubs such as Wolfsburg, Ingolstadt, Weissach, Munich, Stuttgart, and Zwickau, where the livelihoods of tens of thousands of workers hang in the balance. The stakes could not be higher for these communities, as they navigate a landscape fraught with uncertainties and opportunities for transformation.
In the midst of this dynamic landscape, the role of media in providing nuanced analysis and insightful commentary becomes increasingly vital. BBC InDepth stands at the forefront of delivering comprehensive coverage and thought-provoking perspectives on the pressing issues of the day. Through a blend of deep reporting, challenging assumptions, and showcasing compelling content from various platforms, InDepth offers a platform for informed discourse and meaningful engagement.
As we navigate the complexities of a rapidly evolving industry and shifting economic paradigms, the need for critical reflection and robust dialogue becomes paramount. Your feedback and insights are integral to shaping the discourse in the InDepth section, as we strive to offer a platform for diverse voices and perspectives to be heard.
With the automotive industry at a crossroads, the decisions made in the coming months will not only shape the trajectory of individual companies but will also have far-reaching implications for the broader economy and workforce. The narrative of Germany’s automotive prowess is undergoing a profound transformation, and it is in this crucible of change that the seeds of future innovation and progress are sown.
(Photo credit: Getty Images)
