It is considered a key industry in Germany and is in deep crisis. But what’s the problem? An overview.
The German car industry is in crisis. For the first time in 30 years, Volkswagen could face redundancies and plant closures. But where are the difficulties? The five biggest problems at a glance:
Stagnant e-mobility
The abolition of the e-car premium in Germany last year caused demand for battery-powered cars to collapse. This poses several problems for manufacturers: the factories are not working at full capacity, and the EU’s stricter fleet targets for CO2 emissions from 2025 mean that they will have to pay high fines. A major problem is politics itself, says industry expert Frank Schwope, who teaches automotive economics at the University of Applied Sciences for Small and Medium-Sized Businesses in Cologne and Hanover. “The constant back and forth on electromobility is unsettling customers and only leads to distortions.”
Weak economy
The uncertain economy is also causing weak business overall, especially in Germany. In August, new car registrations here fell by almost 28 percent compared to the same month last year, and in the EU as a whole they fell by 18 percent. For the year as a whole, the Association of the Automotive Industry (VDA) is only expecting 2.8 million new registrations, around a quarter less than in the pre-crisis year of 2019. And experts do not expect sustainable growth in Europe. The local car market is considered to be largely saturated.
Dependence on China
At the same time, business abroad is also stagnating. The German car industry’s downfall here is its high dependence on China, where it does around a third of its business. For years, the car market there has ensured rapid growth and good profits. The current stagnation in demand for their models is now hitting VW & Co. even harder. “The German manufacturers seem to be losing ground on the Chinese market,” says Schwope. New brands from China are growing rapidly there and are now pushing their electric cars into Europe. And, says Schwope, they are often not just technologically equal, but even superior.
High costs
At the same time, German manufacturers are struggling with significantly higher energy and personnel costs. The production of inexpensive entry-level models is therefore not profitable in Germany, says Schwope. “As a result, it is mainly higher-priced vehicles that are produced here.” In international comparison, however, Germany is falling further and further behind as an industrial location, VDA President Hildegard Müller recently criticized. Countermeasures must be taken urgently.
Ambitious return targets
According to Schwope, part of the problem is management’s high expectations of profit margins. The pressure to save is now correspondingly great. The manufacturers are still making good money and are by no means on the verge of bankruptcy, says the expert. But in the pandemic years, when mainly high-priced models were built due to the shortage of parts, the industry got used to extremely high profits. “There were dream margins that are now simply being carried forward,” says Schwope. “But that cannot be maintained in the long term.”
Source: Stern
