How Germany’s critical car industry could stall Europe’s biggest economy | DW News

Summary

The German automotive industry is facing significant challenges due to technological stagnation and increased competition, particularly from China. The industry, a major contributor to Germany's economy, has seen a decline in profits with companies like VW, BMW, and Mercedes-Benz experiencing losses. Factors such as higher energy prices, supply chain disruptions, and a slowdown in the Chinese economy have contributed to these issues. The government is considering short-term subsidies to support the industry, but long-term strategies and innovation are needed to remain competitive.

Takeaways

• 🚗 The German automotive industry is facing significant challenges due to a decade of missed technological progress and innovation, particularly in electric mobility.
• 🌐 China's changing role from an export destination to a system rival is impacting the German auto industry, with Chinese vehicles becoming fierce competitors.
• 📉 The industry's struggles are reflected in the German economy, with the auto sector contributing 4-5% of GDP and being a significant source of innovation and productivity.
• 🔋 The transition to electric vehicles is a major factor, with German manufacturers losing market share and facing increased production costs.
• 💹 Profits for legacy car makers like VW, BMW, and Mercedes-Benz have declined significantly in the first half of the year.
• 🏭 Supply chain disruptions from the pandemic and the war in Ukraine have exacerbated the industry's problems.
• 💼 The German government is considering measures to support the industry, such as subsidies for electric vehicles and charging infrastructure.
• 🌍 Other Western economies are also affected by China's rise as a competitor, not just in automotive but across various manufacturing sectors.
• 🛠️ The German automotive industry's current troubles are a combination of long-term strategic failures and short-term cyclical factors.
• 🔄 The industry is undergoing a structural transition, which may lead to job losses and a reevaluation of wage negotiations and worker demands.

Q & A

What is the current state of the German automotive industry?

The German automotive industry is facing severe challenges, including technological stagnation, increased competition from China, higher energy prices, supply chain disruptions, and a struggling economy. It has lost market shares and is seeing increased production costs.

How significant is the automotive industry to the German economy?

The automotive industry is extremely important to the German economy, accounting for 4-5% of its GDP. When considering suppliers and related infrastructure, this figure can rise to 7-9%. Additionally, one-third of Germany's R&D expenditures come from this sector.

What are the long-term factors contributing to the decline of the German automotive industry?

Long-term factors include missing out on technological progress, particularly in electric mobility, and a degree of arrogance in thinking that the industry is strong enough to withstand competition and new technologies.

What short-term factors are affecting the profitability of German car manufacturers?

Short-term factors include higher energy prices, supply chain disruptions from the pandemic and the war in Ukraine, and weaker demand from China due to a slowing economy and a correcting real estate bubble.

How have the profits of major German car manufacturers been affected?

Profits have significantly declined in the first half of the year, with VW experiencing a 14% loss, BMW nearly 15%, and Mercedes-Benz down 16%.

What is the role of China in the current challenges faced by the German automotive industry?

China is emerging as a strong competitor, not only in the automotive sector but also in green technologies and other manufactured goods. Chinese investments in industry have led to them becoming fierce competitors to German and European manufacturers.

What is Germany's exposure to Chinese competition?

Germany is the most exposed to Chinese competition within Europe due to its status as the industrial powerhouse. Other European countries also have significant industrial sectors but are less exposed to China.

How is the German government considering supporting the automotive industry?

The government could provide short-term subsidies, such as the car scrappage scheme, to incentivize the purchase of electric vehicles, especially those made in Germany. They could also offer subsidies for home charging infrastructure.

Are German car companies at risk of becoming obsolete like Nokia or Kodak?

While the German automotive industry is facing significant challenges, it is not yet at the point of obsolescence. The industry has shown resilience in the past and has the potential to adapt and reinvent itself.

What does the future hold for the German automotive industry?

The future involves a longer-term structural transition and increased competition. The industry will need to adapt and innovate to survive, focusing on areas such as electric mobility and digital technology.