Chethana Janith, Jadetimes Staff
C. Janith is a Jadetimes news reporter covering science and geopolitics.
1. Major German carmakers like Volkswagen, Mercedes-Benz, and BMW have recently issued profit warnings.
2. These warnings follow challenges such as potential job cuts, possible plant closures, and the end of Germany’s electric vehicle subsidy program, alongside new EU tariffs on Chinese electric vehicles.
3. According to ING’s Rico Luman, German automakers face the urgent challenge of adapting their products, restructuring, and boosting productivity to retain their long-standing relevance.
Germany’s automotive sector, long recognized for producing reliable and innovative internal combustion engine (ICE) cars, is struggling to preserve its relevance in the age of electrification.
Major domestic manufacturers such as Volkswagen, Mercedes-Benz Group and BMW have issued profit warnings in recent weeks, citing economic weakness and sluggish demand in China, the world’s largest car market.
The headwinds, while not unique to Europe’s largest economy, come on top of the specter of historic job cuts and possible German plant closures at Volkswagen, an abrupt end to Germany’s electric car subsidy program late last year, and Berlin’s recent failure to prevent fellow European Union member states from voting in favor of EU tariffs on Chinese electric vehicles (EVs).
The latter appeared to hint at the Germany’s waning influence over regional policy - a likely unthinkable notion only a few years ago.
This storm of issues has stoked concerns that the high-quality made in Germany’ moniker may be losing its luster in the shift away from ICE vehicles.
“The German quality label still holds strong, but it’s not enough in a rapidly changing automotive world,” said Rico Luman, senior sector economist for transport and logistics at ING.
“It’s always a mix of product, quality and price. And quality is also associated with the past, while we’re in a full-scale make-over of model ranges now. So, customers are looking at new concepts anyway,” Luman said.
“The question is whether German car makers manage to adjust their product portfolios, change their organizations, and ramp up productivity quickly enough to preserve the status and relevance they had for decades.”
Luman said the industry’s transition to electrification means it is going to be increasingly important for German automakers to scale tech-rich supplies for EVs, particularly for batteries – noting that this hasn’t yet been developed in Berlin.
A spokesperson for Germany’s coalition government did not respond immediately to a request for comment.
Chancellor Olaf Scholz’s government is exploring ways to support Volkswagen through cost-cutting measures without closing domestic plants. Economy Minister Robert Habeck has called Volkswagen “centrally important” to Germany, according to a report on Sept. 19.
Brand loyalty
Not everyone is as concerned about the outlook for Germany’s car industry.
Sigrid de Vries, director general of the European Automobile Manufacturers’ Association (ACEA), a car lobby group, said she finds it “really hard to believe” that Germany’s auto sector is struggling to adapt to the electrification.
The ACEA represents 15 major Europe-based automakers, including Volkswagen, Mercedes-Benz Group and BMW.
“I’m more focused on ‘made in Europe’ than just ‘made in France’ or ‘made in Germany,’ but there’s a strong tradition in automaking that brings its own expertise,” de Vries said at the Paris Motor Show.
“It’s a complicated [and] it’s a very advanced product that needs to come off production lines in high volumes, so you need to get a lot of things right. And we shouldn’t underestimate that capacity I think, also to innovate and to master new technologies.”
ACEA’s de Vries said that, while some might argue German automakers have some work to do to get to speed, “I think, to stay in that terminology, then they are catching up fast.”
“They have [really] good and, I think, interesting technology and products to offer and don’t underestimate indeed the name and fame of brand loyalty,” she added.
Some hope that this week’s Paris Motor Show could prove to be a turning point for Europe’s auto industry.
Several carmakers have taken the opportunity to launch low-cost EVs in an attempt to jump-start demand and recapture some of the market share now held by Chinese brands.
BMW presented two budget electric Mini models at the trade show, including the John Cooper Works Electric and the John Cooper Works Aceman.
Slowing down on electrification is ‘not the answer’
Julia Poliscanova, senior director for vehicles and e-mobility supply chains at the campaign group Transport & Environment, said there were two separate issues to consider when assessing the health of Germany’s auto sector.
“There’s a difference between what benefits manufacturing in Germany and what benefits German manufacturers globally - and these don’t always align,” Poliscanova said at the Paris Motor Show.
“I think the German industry and some carmakers like Volkswagen do genuinely have serious problems globally. What I just don’t believe is that this is all due to European regulations and electrification. It is a lot bigger than that.”
Poliscanova said some of the challenges facing Europe’s auto giants include increased competition from China, the “patriotic” trend of Chinese consumers choosing to buy domestic vehicles rather than ones made in Europe, along with overall car sales failing to return to pre-Covid-19 levels.
“So, yes, a mass-market German manufacturer will really suffer but slowing down on electrification or the technology that everyone wants to buy is not the answer,” she added.
