Germany’s automotive industry, once a symbol of national pride, is in crisis. The mood among car manufacturers is grim, with industry giant Volkswagen cutting jobs. But how serious is the situation? Here’s an overview.
The Industry
Considered a key sector in Germany, the automotive industry employs 770,000 people. In terms of revenue, it is the country’s largest industry by far, accounting for 17% of German exports in 2023, according to the Federal Statistical Office. However, major automakers are facing a crisis. For the first time in 30 years, Volkswagen may face layoffs and factory closures. Experts fear this could be just the tip of the iceberg. What are the main issues? Here’s a closer look:
The Manufacturers
German automakers are struggling with weak sales figures and the high costs of transitioning to electric vehicles, which are eating into profits. In the first half of the year, Volkswagen reported a 14% drop in profit, BMW nearly 15%, and Mercedes-Benz almost 16%. All three companies have already lowered their profit targets for the year, with BMW being the latest to adjust its outlook on Tuesday. The mood in the industry is bleak. According to the Munich-based Ifo Institute, the sector is looking toward the future with concern.
The Factories
On average, German factories for Volkswagen, BMW, Mercedes, and other manufacturers were operating at just over two-thirds capacity last year, according to data from Marklines. While all plants combined could produce 6.2 million vehicles annually, only about 4.1 million were manufactured in 2023. According to Eric Heymann, an analyst at Deutsche Bank Research, the industry is building far fewer cars with a large workforce than before. Production is down 23% from previous peak levels, but employment has only fallen by 8%, making the factories less productive.
The Suppliers
For automotive suppliers, employing around 270,000 people (down from 311,000 in 2018), the crisis is already well underway. Automakers place orders based on demand, and according to a survey by the consulting firm Horvath, 60% of supplier companies plan moderate job cuts. ZF has announced plans to cut between 11,000 and 14,000 jobs in Germany by the end of 2028. Continental is considering spinning off its automotive supply business and taking it public.
The Customers
While material shortages and supply chain disruptions have largely eased, demand problems have grown, according to the German Association of the Automotive Industry (VDA). “The challenging overall economic situation is affecting consumer behavior, leading to relatively weak demand for passenger cars,” said a VDA spokesperson. German manufacturers are hit particularly hard, as new competitors like Tesla and Chinese manufacturers are entering the market, causing local automakers to lose market share.
The Economy
Experts believe that the crisis in the automotive industry is exposing the weaknesses of the German economy. German industrial production is still 10% below pre-pandemic levels, more than four years after the outbreak of COVID-19, says ING economist Carsten Breszki. The old business model, which relied on cheap energy and easy access to large export markets, no longer works. With declining economic momentum in the U.S. and China, and rising trade tensions, there is little hope for a strong recovery driven by exports.
The Export Market
Exports were once the main driver of Germany’s automotive industry. Of the 4.1 million cars produced in Germany in 2023, around 3.1 million – roughly three-quarters – were exported, according to the VDA. But as a VDA spokesperson warns, “The balance of power in the global market is shifting.” While traditional markets in Europe and North America are shrinking, significant growth is happening in China and India, markets increasingly served by local competitors.
