Can the car park in Germany still be rescued or restored?
It's evident now: Germany and its leading industry, the automotive sector, are in need of a turnaround. Volkswagen has called off a 30-year labor agreement. Shutdowns and layoffs due to operational reasons are imminent. German car manufacturers' business in China is deteriorating, and the substantial financial aid from China to German headquarter is no more. Bosch and ZF are slashing jobs in large numbers. Continental seems to be gradually fading away. The trend is extending to machine and plant manufacturers. What's amiss? How does Germany's industry recover from this predicament?
Fact 1: Costs are spiraling up in Germany. The world's highest energy prices, fragile infrastructures that inflate logistics costs, high salaries and high corporate taxes acting as brakes, entrapment in excessive regulatory requirements that further boost administrative costs, and political promises that lead to costly misinvestments inequality is the case. Electromobility serves as a sad example, but not the only one.
Fact 2: Demand is weak. Tesla and the Chinese have taken over the emotional appeal and superiority of German cars. We have lost our edge and struggle to sell at premium prices when we are no longer unique.
To escape this precarious position, we need more clout in products and controlling costs.
Let's examine the costs: A significant portion of our lack of cost competitiveness stems from activist politics. Yes, wages are high. But it's not the wages that are killing us, but the chaotic energy policy, ruined logistics infrastructure, a tax system that strangles companies, data protection that hampers the use of the most essential resource for digital innovations, regulations from Brussels and Berlin. All of these could be changed, but there's a lack of faith that we can bring it about in our system.
The responsibility of the German automotive industry is not to salvage Germany's location
Hovering over everything is Lower Saxony with its outdated VW law and preferred VW shares. The state government, in conjunction with the powerful IG Metall, keeps the company under a sort of protective dome that disallows essential adjustments. If plants are closed, minimize the impact in Lower Saxony. With these entrenched structures, sustainable cost-saving measures will never materialize at VW, and the company will never stabilize permanently.
Now let's look at the value and attractiveness of our cars: The German automotive industry has a "natural competitive benefit" in the internal combustion engine and the driving characteristics of our cars. This natural competitive benefit did not emerge overnight but through relentless engineering work spanning 50 years. But the cars of tomorrow are electric. The natural competitive advantages of lithium-ion batteries are in Asia. Furthermore, the car of tomorrow is more than just electric. Software and powerful computers serve as the attraction of the car of tomorrow. The smart cockpit with entertainment functions and autonomous driving are features that appeal to customers in China. Huawei, Tencent, Baidu, Nvidia, or Google shape the car of tomorrow.
In Germany, there are no such tech giants. Why? Because we're shortsighted. Because industry policy prioritizes headlines and political marketing over genuine progress. Today batteries, tomorrow hydrogen, then coronavirus vaccines, then LNG terminals, then cloned chip factories from the US in Magdeburg, checks for green steel, incentives for electric cars that are abruptly cut, or a sudden heat pump frenzy: We lack consistency.
A strategy should be more than clever soundbites from an eloquent economics minister. Strategy means thinking long-term: If batteries, then for 30 years! If electric cars, then without losing interest after three years! The formula is straightforward: select topics and stay committed. The Chinese, the Americans, and successful football teams do this: Those who establish their own system over a long period have an edge. Those who keep changing strategies and coaches falter.
Mathematically, long-term thinking is not complicated. The challenge lies in everyday political practice. As a result, the industry may have no alternative but to expand globally even further and engage directly in innovations in Asia, where innovation flourishes and costs don't spiral out of control. The responsibility of the automotive industry is not to preserve Germany's location. The responsibility of carmakers and suppliers is to build sustainable businesses.
In response to the escalating costs in Germany, the manufacturing of motor vehicles needs to consider strategic locations and production facilities outside of the country to reduce operational expenses. To maintain competitiveness in the global market, German automakers must invest in research and development in electric vehicle technology, partnering with tech giants from regions like Asia where innovation and lower costs are prevalent.
