Theo Leggett
Global industry correspondent
BBC
For many years, car-making has been the jewel in Germany’s business crown, a formidable image of the rustic’s well-known post-war financial miracle. Its “Giant 3” manufacturers, Volkswagen, Mercedes-Benz, and BMW, have lengthy been praised for his or her efficiency, innovation and precision engineering. However as of late, the German motor business is suffering. With the faltering financial system a key consider federal elections this month, how can it get again at the street to restoration?
Whilst you arrive by way of educate in Wolfsburg, Decrease Saxony, the very first thing you spot is the Volkswagen manufacturing facility. Its large facade, emblazoned with a large VW emblem and flanked by way of 4 tall chimneys, dominates one financial institution of the canal that runs during the town. The 6.5 sq km (2.5 sq mile) complicated sits adjoining to the Autostadt, a type of theme park dedicated to the car and to VW, Europe’s largest carmaker. The Volkswagen Enviornment, a sports activities stadium, is a brief distance away.
Wolfsburg is Germany’s resolution to mid-Twentieth Century Detroit – now not such a lot a town with a vehicle manufacturing facility as a manufacturing facility with a town that has grown up round it. Some 60,000 other people from around the area paintings within the plant, whilst town itself has a inhabitants of round 125,000. Locals say that despite the fact that you do not paintings within the manufacturing facility your self, it is positive lots of your mates will, together with part of your elegance from college.
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Whilst you arrive by way of educate in Wolfsburg one of the vital first stuff you see is the Volkswagen manufacturing facility
“Wolfsburg and Volkswagen – it is more or less a synonym,” explains Dieter Landenberger, the VW Workforce’s in-house historian, as he seems lovingly at an early style Beetle. It’s one in every of an array of superbly restored vintage vehicles within the Zeithaus – an enormous, glass-fronted museum within the Autostadt devoted to icons of the motor business.
“We are pleased with the plant,” he says. “This is a image of that duration within the Fifties when Germany needed to reinvent itself and rebuild after the battle. It was once a type of motor for the German financial miracle.”
Nowadays, alternatively, the plant has additionally come to symbolise one of the vital primary issues affecting the German vehicle business as an entire. The Wolfsburg manufacturing facility is in a position to development 870,000 vehicles a yr. However by way of 2023 it was once making simply 490,000, in step with the Cologne-based German Financial Institute. And in Germany it’s a ways from on my own. Automobile factories around the nation had been running smartly underneath their most capability. The choice of vehicles produced in Germany declined from 5.65m in 2017 to 4.1m in 2023, in step with the Global Organisation of Motor Automobile Producers.
All of this issues deeply because the German public prepares to visit the polls on 23 February. The automobile business is not only a supply of nationwide pleasure; additionally it is an important driving force of nationwide wealth. Disagreements over the right way to unravel the rustic’s financial malaise had been an element within the cave in of the coalition executive in November. Whoever is in energy after the election will inevitably desire a plan to restore the financial system – and getting the motor business again in tools is more likely to play crucial position.
Automobile-making makes up a few 5th of the rustic’s production output, and if the provision chain is taken into consideration, it generates round 6% of GDP, in step with Capital Economics. The business employs some 780,000 other people at once – and helps thousands and thousands of different jobs.
It is not simply manufacturing this is down. Gross sales of vehicles made by way of German manufacturers are a ways not up to they had been only some years in the past. Between 2017 and 2023, the ones of VW fell from 10.7m to 9.2m, whilst over the similar duration BMW’s went from 2.46m to two.25m and Mercedes-Benz’s went from 2.3m to two.04m, corporate experiences display.
All the Giant 3 noticed their pre-tax earnings fall by way of a few 3rd within the first 9 months of 2024, and every warned that their profits for the yr as an entire can be not up to up to now forecast.
The improvement of electrical vehicles has sucked up large funding, however the marketplace for them hasn’t grown as temporarily as anticipated, whilst international competition are flexing their muscle tissue. The specter of price lists being imposed by way of the United States and different governments additionally looms huge.
“There are such a lot of crises, an entire global of crises. When one disaster is over, some other is bobbing up,” is how Simon Shütz, a spokesman for the German Car Trade Federation (VDA) places it.
Automobile gross sales throughout Europe had been declining since 2017, in step with Franziska Palmas, a senior Europe economist at Capital Economics. “In recent times they have got recovered slightly, however they are nonetheless round 15 to twenty% not up to they had been on the top in 2017,” she says. “That is partially because of components just like the pandemic, the power disaster. However it is also vehicles lasting longer – and other people have already got numerous vehicles in Europe. So call for has been susceptible.”
Electrical goals
Some other key issue has been the aforementioned transition to electrical vehicles. Because the diesel emissions scandal of 2015 – by which VW was once discovered to have rigged emissions assessments in the United States – the business has been present process a technological revolution.
With the EU and Eu governments made up our minds to section out petrol and diesel vehicles over the following decade, producers have had little selection however to speculate tens, and jointly loads of billions of Euros on growing electrical fashions and development new manufacturing strains.
Alternatively, even though electrical vehicles do now make up an important proportion of all vehicles offered – 13.6% within the EU and 19.6% in the United Kingdom ultimate yr, as an example – their marketplace proportion has now not been rising as temporarily as expected.
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Automobile-making makes up a few 5th of Germany’s production output
And in Germany itself, the surprising removing of beneficiant subsidies for electrical vehicle patrons in overdue 2023 if truth be told contributed to a dramatic 27% fall in gross sales of all electrical vehicles inside the nation ultimate yr, making lifestyles nonetheless tougher for German companies of their house marketplace.
“The verdict to drop subsidies all of sudden – that was once very unhealthy, as it undermined accept as true with amongst our shoppers,” says the VDA’s Simon Schütz.
“Going from the combustion engine to electrical mobility could be very large procedure. We’re making an investment billions in rebuilding the entire factories. And in order that takes a while, there is no query about it.”
A dear industry
Whilst all of this has been happening, German producers have additionally been grappling with some other severe fear. Doing industry in Germany itself, running factories right here and using loads of hundreds of other people, could be very pricey.
Employees within the car sector have historically loved beneficiant pay and advantages because of agreements drawn up between unions and control. In keeping with Capital Economics, in 2023 the typical per month base wage within the German auto business was once about €5,300, when compared with €4,300 around the German financial system as an entire.
For years, this method gave German-based corporations positive benefits, as an example in averting business unrest and in attracting and maintaining proficient workforce. Alternatively, it additionally ended in German vehicle producers having the best labour prices within the world business. In 2023, those averaged €62 in step with hour, in comparison to €29 in Spain and €20 in Portugal, in step with the VDA.
The placement for Germany’s home vehicle business changed into extra acute following Russia’s invasion of Ukraine. This choked off Germany’s once-abundant provides of inexpensive Russian gasoline, on the very time when the rustic was once phasing out nuclear energy.
The outcome was once a pointy building up in power costs. Despite the fact that they have got since subsided, power prices for business customers in Germany stay very excessive by way of global requirements. “Power costs listed below are 3 to 5 instances upper than in the United States, or in China – a lot upper than for our primary competition,” says Mr Schütz.
And that is being felt around the business, now not simply on the carmakers themselves. “From the Thysenkrupp and Salzgitter metal generators generating the sheet steel rolls which can be later was doorways and bonnets, to makers of smaller parts utilized in drivetrains, prices have exploded on account of excessive power costs,” says Matthias Schmidt of Schmidt Car Analysis.
‘An overly large surprise’
Final yr those pressures got here to a head. At VW, which has 45% of its world workforce in Germany, managers in spite of everything made up our minds radical motion was once had to deliver down prices.
“It was once an excessively large surprise,” IG Metall union spokesman Steffen Schmidt tells me over a cup of espresso close to the VW manufacturing facility in Wolfsburg. “The corporate did not say anything else publicly.”
It was once left to Daniela Cavallo, head of the robust VW works council and the highest workers’ consultant, to ship the inside track. “They held a large assembly out of doors the gates of the manufacturing facility. Hundreds of employees – and it’s worthwhile to have heard a pin drop,” says Mr Schmidt.
“They had been shocked. Hundreds of other people, all utterly silent.”
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Now not all the German vehicle business’s issues are confined to Germany itself
What VW proposed was once unparalleled. Union representatives had come to conferences anticipating to barter an annual pay upward thrust. They had been soliciting for a 7% spice up. As a substitute, they had been informed, the corporate wanted them to take a ten% pay reduce.
Worse was once to observe. The corporate mentioned it will have to near as much as 3 of its factories inside Germany itself – and was once tearing up a task safety settlement that have been in position for many years.
Arne Meiswinkel, VW’s leader negotiator, mentioned on the time that the location it confronted in Germany was once “very severe” and that “Volkswagen will best be capable of be successful if we future-proof the corporate now within the face of emerging prices and the large building up in festival”.
Volkswagen had by no means up to now closed a German manufacturing facility in its 87-year historical past. Within the face of intense opposition from unions and politicians, and following quick however disruptive “caution moves” by way of unionised employees, the speculation was once in the long run shelved. However the actual fact it have been put ahead despatched a seismic surprise thru all the sector.
Within the interim, the personnel did conform to painful limits on pay and bonuses, and VW mentioned it will reduce greater than 35,000 jobs by way of the tip of the last decade, albeit in a “socially accountable approach” that have shyed away from obligatory redundancies.
Much less conspicuously, Mercedes-Benz additionally introduced a cost-cutting force ultimate yr, aimed toward saving a number of billion euros yearly – albeit obligatory redundancies within the German personnel are extremely not likely, as a task safety settlement successfully laws them out till 2030. In the meantime Ford, which operates two factories in Germany, not too long ago introduced plans to chop 2,800 jobs within the nation.
Now not all the German vehicle business’s issues are confined to Germany itself. With the Eu marketplace saturated, for a number of a long time the continent’s producers have appeared for enlargement in different places.
The affect of China
One of the profitable markets has been China, the place for some time the rising heart elegance had an it sounds as if insatiable urge for food for upmarket Eu automobiles. VW, Mercedes-Benz and BMW all teamed up with native companies, putting in factories in China itself to satisfy native call for.
However now that supply of enlargement is drying up. The Giant 3 have all noticed gross sales fall not too long ago – in 2023 VW’s China gross sales had been down 9.5% at the earlier yr, Mercedes-Benz’s by way of 7% and BMW’s by way of 13.4%. Their mixed proportion of the Chinese language marketplace has reduced in size as smartly to 18.7%, from a top of 26.2% in 2019. This seems to be the results of a slowing Chinese language financial system, falling pastime in pricey, foreign-badged vehicles and the speedy enlargement of native marques, particularly within the electrical vehicle marketplace.
“Now not that way back, Western manufacturers represented high quality and accept as true with,” explains Mark Rainford, founding father of the Within China Auto website online. Alternatively, he says, since then the popularity and attraction of Chinese language manufacturers has stepped forward past reputation.
All the Giant 3 say traits in China have had an important affect on their profits.
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Gross sales of vehicles made by way of German manufacturers are a ways not up to they had been only some years in the past
Chinese language manufacturers also are making an attempt to construct a proportion of the Eu marketplace, helped by way of their a lot decrease running prices than extra established competitors, each as a result of wages are decrease in China and since, as natural EV companies, they do not have the similar legacy prices carried by way of producers making the transition from petrol and diesel to battery-powered vehicles.
In keeping with the Eu Fee, Chinese language manufacturers additionally get pleasure from hefty executive subsidies, which enable them to promote vehicles at artificially low costs. In October, the EU presented further price lists on imports of Chinese language-made EVs, with the intention to create a extra degree taking part in box.
Industry wars?
German companies adversarial the EU price lists, as a result of they feared retaliation from China may just have an effect on their very own exports. Now in addition they face the specter of new protectionist measures being presented by way of the Trump management, together with imaginable price lists on vehicles shipped from the EU. For an business that is predicated closely on exports, the upward push of protectionism is a rising risk.
“We all know that business wars best create losers on each side. Price lists will charge wealth, charge enlargement and price jobs,” says the VDA’s Simon Schütz.
Despite the fact that one of the vital pressures dealing with Germany’s vehicle corporations weren’t foreseeable, there was once nonetheless a component of complacency, believes analyst Matthias Schmidt: “They knew the structural problems had been there, however had been blindsided by way of reasonable Russian gasoline,” he says.
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All the Giant 3 say traits in China have had an important affect on their profits
“The growth to China and the excessive earnings being shipped again to Europe plastered over the excessive labour charge problems, giving unions a joker card to play with.
“Germany has successfully been an export-driven marketplace, and as soon as the ones markets sneeze, Germany catches a chilly, which is what is came about.”
A high-stakes problem
So can Germany’s carmakers revive their fortunes? This is a necessary query for the producers, for his or her networks of providers and for the rustic as an entire.
“The issue for Germany is we don’t seem to be aggressive,” says Dr Ferdinand Dudenhöffer, head of the Bochum-based Heart for Car Analysis. “Now not simply in charge phrases, but additionally in the case of the brand new applied sciences which can run the sector in destiny”.
He thinks China has turn out to be the centre of gravity for innovation in spaces corresponding to digitisation and battery generation. “The answer for the carmakers and for the providers, for my part, might be that they take their factories in another country,” he says.
Simon Schütz is extra constructive. He thinks the business can prosper, however provided that it will get the strengthen it wishes from the federal government after the elections later this month.
“Our car business might be world-leading, I’m certain of that,” he says.
“The query is, the place will the longer term jobs be? Will they be in Germany, as a result of we will construct vehicles right here, or will our corporations pass in different places?’
For union rep Steffen Schmidt, alternatively, the answer is to return to Germany’s conventional business values. “We need to turn out to be a pacesetter in innovation and generation once more,” he says. “Then we will stay excessive pay and excellent prerequisites for employees.”
He thinks the trail forward for the brand new executive could be very transparent: “Make investments, make investments, make investments. In infrastructure, in generation, in inexperienced power and in training.”
For tens of hundreds of employees in Wolfsburg, and in Germany’s different “vehicle cities” corresponding to Ingolstadt, Weissach, Munich, Stuttgart and Zwickau, the stakes may just now not be upper.
Most sensible image credit score: Getty pictures
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