It is considered a key industry in Germany: 770,000 people work in the German car industry Measured by sales, it is by far the largest industrial sector in the country, with 17 percent of German exports coming from cars and parts alone in 2023, according to the Federal Statistical Office. But the companies are in crisis. For the first time in 30 years, Volkswagen to operational Terminations and Plant closures come.
This could be just the tip of the iceberg, experts fear. What’s the problem? An overview:
German manufacturers are struggling with weak sales figures and the high costs of switching to electric drive. This is causing profits to melt away. Volkswagen reported 14 percent less profit in the first half of the year, with BMW it fell by almost 15 percent, with Mercedes-Benz by almost 16 percent. All three have already had to cut their profit targets for the year as a whole, most recently BMW on Tuesday. And the mood is gloomy. According to the German Ifo Institute, the industry is looking to the future with concern.
On average, the German plants of Volkswagen, BMW, Mercedes & Co. were only operating at just over two-thirds of capacity last year, according to data specialist Marklines. All sites together could deliver 6.2 million cars per year. In 2023, only a good 4.1 million were produced. The industry is building far fewer cars than before, with high personnel costs, says analyst Eric Heymann of Deutsche Bank Research. While production is 23 percent below previous highs, the number of employees has only shrunk by eight percent. This makes the plants less productive.
The crisis has long since reached automotive suppliers, which still employ around 270,000 people (in 2018 there were around 311,000). After all, car manufacturers order according to the order situation. According to a survey by the Horvath consulting firm, a majority of 60 percent of companies are planning moderate job cuts. ZF, for example, has announced that it will cut between 11,000 and 14,000 jobs in Germany by the end of 2028. Continental may want to spin off its automotive supply business completely and list it on the stock exchange.
While material and delivery bottlenecks have largely been resolved recently, the Association of the Automotive Industry (VDA) believes that demand problems have grown. “The difficult overall economic situation is affecting consumer behavior and is causing comparatively weak demand for cars,” says a VDA spokeswoman. German manufacturers are hit doubly hard. At the same time, new competitors such as Tesla and manufacturers from China are entering the market. The result: the market share of local car manufacturers is falling.
According to experts, the crisis in the auto industry is ruthlessly exposing Germany’s weaknesses as a business location. Four and a half years after the outbreak of the pandemic, German industrial production is still ten percent below pre-coronavirus levels, says ING economist Carsten Breszki. The old business model with cheap energy and easily accessible large export markets no longer works. Given the slowdown in the USA and China and additional trade tensions, there is little hope for a strong export-driven recovery.
Exports have long been considered the most important driver of the German auto industry. According to the VDA, 3.1 million of the 4.1 million cars produced in Germany in 2023 – around three quarters – went abroad. However, a VDA spokeswoman warns: “The balance in the global market is shifting.” While the traditional markets in Europe and North America are shrinking, there is high growth in China and India – which are increasingly being served by local competitors.
At the same time, the manufacturers that were once laughed at in Germany are also pushing into Europe. In China, the carmaker BYD has already replaced the VW brand as the market leader. “Against the backdrop of major investments in future technologies, the companies are in intense competition,” says the VDA spokeswoman. “Some companies are investing heavily in transformation, while others want to open up markets – both of which are major efforts.” German manufacturers often find it more difficult here than new challengers who are fully committed to electric vehicles.
According to the German Institute for Economic Research (DIW), German car manufacturers still have “every opportunity and ability to assert themselves in global competition.” “To do this, however, car manufacturers must reinvent themselves and shift and use their innovative strengths to implement the switch to e-mobility and autonomous driving faster and better,” DIW President Marcel Fratzscher told dpa. “The claim that the combustion engine is sustainable is a dangerous misconception.” The decision in favor of the electric car was made long ago worldwide.