Lecture on German Automotive Industry Challenges

Introduction

• The German auto industry and economy are facing challenges due to missed technological progress over the past decade.
• China is now seen as a system rival rather than just a destination for exports.
• The auto industry is crucial to the German economy, accounting for 5% of GDP and 800,000 jobs.
• German government involvement due to the sector's importance and current challenges.

Current Situation

• The German auto industry is in a difficult period, not suddenly declining but gradually due to technological lag.
• Key challenges include:
  • Missed innovations in electric mobility.
  • Higher energy prices.
  • Supply chain disruptions (pandemic, Ukraine war).
  • Strong competition from China.

Importance of the Auto Industry

• Contributes 4-5% to Germany’s GDP, potentially 7-9% including indirect sectors.
• Major contributor to R&D, often one-third of national expenditure.

Financial Performance

• Decline in profits for major car manufacturers in the first half of the year:
  • VW: 14% loss.
  • BMW: 15% loss.
  • Mercedes-Benz: 16% loss.
• Long-term issues: lag in innovation, failure to meet consumer demands (digital equipment).
• Short-term issues: Weak Chinese economy, end of subsidies for electric vehicle purchases.

Broader Economic Exposure

• Other sectors apart from auto facing similar competition from China.
• Germany's industrial strategy was outpaced by Chinese investments (Strategy 2025 vs. Industry 4.0).
• Germany’s exports to China decreased from 8% pre-pandemic to 5-6% currently.

Labor and Economic Concerns

• Termination of job security agreements may signal potential job losses and shift in labor negotiations.
• Economic stagnation and insolvency risks present.
• Potential shift from wage growth to job security in negotiations.

Government Role and Strategies

• The government cannot control demand from China or the rise of Chinese electric vehicles.
• Potential measures:
  • Short-term subsidies (e.g., car scrappage schemes targeted at electric vehicles).
  • Support for home charging infrastructure.
  • Limited ability to influence European production rules or implement protectionist measures alone.

Conclusion

• Despite current challenges, the German auto industry is not at an end.
• Historical resilience of German manufacturing suggests potential for recovery and adaptation.
• Long-term structural transition and competition are the primary concerns.

Final Thoughts

• German automotive industry faces a structural shift, needing innovation and adaptation to survive.

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Speaker: Carsten Bresky, Chief Economist for Germany at ING.