Germany’s automotive industry, once a symbol of the nation’s economic prowess, is currently facing significant challenges that threaten its future viability. The country’s “Big Three” car manufacturers—Volkswagen, Mercedes-Benz, and BMW—are grappling with declining production and sales figures, as well as rising operational costs, particularly in the wake of the transition to electric vehicles.
The Volkswagen factory in Wolfsburg, a major hub for the industry, exemplifies the current crisis. Once capable of producing 870,000 cars annually, the plant’s output has plummeted to just 490,000 vehicles as of 2023. This decline is reflected across the nation, with total car production dropping from 5.65 million in 2017 to approximately 4.1 million in 2023, according to the International Organisation of Motor Vehicle Manufacturers. This downturn has serious implications, as the automotive sector accounts for about 20% of Germany’s manufacturing output and generates around 6% of the country’s GDP.
Sales figures also paint a bleak picture. Between 2017 and 2023, Volkswagen’s sales decreased from 10.7 million to 9.2 million, while BMW and Mercedes-Benz reported similar declines. The economic landscape has further worsened, with pre-tax profits for the Big Three falling by roughly a third in the first nine months of 2024, leading to lowered earnings forecasts for the year.
The industry is in a state of flux, largely due to the shift towards electric vehicles. Following the diesel emissions scandal in 2015, car manufacturers have been compelled to invest heavily in electric technology. However, the market for electric vehicles has not expanded as quickly as anticipated. In Germany, the abrupt removal of subsidies for electric car buyers in late 2023 triggered a dramatic 27% decline in electric vehicle sales, exacerbating the struggles of local manufacturers.
Adding to these challenges are the high labor costs associated with operating in Germany. In 2023, the average monthly salary for workers in the automotive sector was around €5,300, significantly higher than the national average of €4,300. This trend has made it increasingly difficult for German manufacturers to compete globally, especially against countries like Spain and Portugal, where labor costs are considerably lower. The energy crisis following Russia’s invasion of Ukraine has further intensified these issues, leading to soaring energy prices that remain three to five times higher than in the US or China.
In response to these pressures, Volkswagen has proposed drastic measures, including potential factory closures and pay cuts. This has sent shockwaves through the industry, with union representatives expressing disbelief at the company’s proposals. Although the idea of closing factories has been shelved, Volkswagen plans to cut over 35,000 jobs by the end of the decade, albeit in a manner that avoids compulsory redundancies.
The outlook for the German car industry is further complicated by shifting dynamics in the global market, particularly in China. Once a lucrative market for German brands, sales in China have begun to decline, with Volkswagen experiencing a 9.5% drop in sales in 2023. This downturn is attributed to a slowing Chinese economy and increased competition from local manufacturers, especially in the electric vehicle sector.
As the industry grapples with these multifaceted challenges, experts emphasize the need for significant investment in innovation and technology to regain competitiveness. The future of the German automotive sector hinges on whether it can adapt to these changes and secure government support in the coming years. With the stakes high for thousands of workers and the broader economy, the path forward remains uncertain, but analysts agree that a return to Germany’s industrial roots, focusing on innovation and sustainability, is crucial for revitalizing the sector.