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Market Environment Germany

The Importance of the Automobile to Germany

For the first time since 2009, the value of German car exports is declining. The threatening trade conflict with the United States, the Brexit and new emission regulations are putting the German automotive industry under pressure. The country’s most important industry is facing uncertain times ahead.

Any German who has ever driven a taxi abroad has already experienced the situation: the taxi driver asks where you come from. The German makes himself known. And no matter what country the German is in – cars are a frequent topic. Ever since the diesel scandal in 2015, their relationship to cars has become more complicated. The proud car-producing nation has become a country where many are struggling with its most important industrial sector.

Taxi drivers not only often talk about German cars, they also drive them. But the export figures for 2018 now make it clear that the car industry could be on the verge of a turnaround: According to a study by Deutsche Bank, the economic crisis in 2009, the value of car exports has almost doubled from around 123 billion euros to 235 billion euros in 2017. Now the statisticians are reporting the first decline in ten years: The value of exports is falling, by more than two percent or 5 billion euros to 229.7 billion euros.

The “WLTP curse” is likely to play a significant role in this. The German Times states that car manufacturers were not well prepared for the change in the exhaust procedures for new cars. This led to production bottlenecks – which were also reflected in German economic growth.

China – The Largest Selling Car Market

The problems may lie deeper than just not being prepared enough. Until now, the popularity of German cars abroad has been perhaps the greatest strength of German carmakers. But in the trade conflict this could become their greatest weakness.

Slow growth in China and the threat of American car tariffs, which would hinder access to the American market, are spoiling the prospects for VW, BMW and Daimler.

The trade conflict has the potential to seriously affect the German automobile industry in the long run. Measured by export value, America is by far the most important buyer of motor vehicles from Germany, according to data from the Federal Statistical Office. Car manufacturers are reacting to this by relocating production to America. In second and third place in the export statistics are further problems in trade policy: the United Kingdom and China.

Looking at the number of newly registered cars alone, China is the world’s largest sales market. The growing middle class is increasingly reaching for the status symbol: According to data from the German Association of the Automotive Industry (VDA), more than 23 million vehicles were registered there in 2018.

In second place in the ranking comes America, where 17.2 million cars were registered last year. For comparison: throughout Europe, 14.2 million new vehicles rolled onto the roads in the same period, and in Germany the figure was just 3.4 million.

The Influence on German Cars by the United States

Politicians and representatives of the German automotive industry are expressing concern these days about the difficult situation for the automotive industry. At the Munich Security Conference, Chancellor Angela Merkel (CDU) was dismayed to learn that, according to the assessment submitted to US President Donald Trump, car duties on German cars would be justified on grounds of national security. Trump has not yet reacted to this, but unease is growing.

In view of the high vulnerability of the automotive industry, Federal Economics Minister Peter Altmaier (CDU) also warned against a further phase of escalation in the trade conflict with America – and added in the same breath: “Which does not mean that we must not also be prepared to defend our interests if we are unfairly pressured.”

With Trump in the White House, the situation for the German automotive industry remains unpredictable – the willingness in Brussels and Berlin to impose counter sanctions hardly makes the situation for the industry any better. American automobile duties would benefit no one, they would at best “weaken world trade and international value chains,” said Bernhard Mattes, President of the German Association of the Automotive Industry (VDA). A spiral of tariffs and counter-tariffs would also only have a negative effect on the American automotive industry.

Germany’s Economic Dependence

A sustained weakening of car manufacturers could have a severe impact on the entire German economy. After all, around 2 million jobs depend directly or indirectly on the car industry including manufactures, and suppliers that are part of the famous German Mittelstand. That is a good 4 percent of the more than 44 million employees in Germany. In Bavaria, Baden-Württemberg and Lower Saxony it is almost 5 percent and in Saarland about 7 percent, the consulting firm EY has calculated. According to the manufacturers’ association Acea, the number of jobs in Europe as a whole amounts to around 13.3 million.

For the German gross domestic product (GDP), the car industry is even slightly more important than for jobs. The Federal Statistical Office assumes that the automotive industry will contribute 4.5 percent to German GDP in 2015. In 2005 it was only 3.4 percent. This means that almost every twentieth euro of value added in Germany now comes from the automotive industry.

Looking at the manufacturing industry, one in five euros of value added comes from the car industry. This is an excellent result, especially in a European comparison. In France and Italy, not even every twentieth euro from the manufacturing industry is related to cars. In Spain it is also only one in thirteen.

Above all, however, the share of the car industry stagnated in Italy between 2005 and 2015, while it even declined in Spain and France. Germany, by contrast, continued to expand its automotive supremacy in Europe.

But these figures are from 2015, and in the meantime the German automotive industry has been severely affected by the diesel crisis. The sales of most manufacturers continue to develop positively, even though Daimler had to announce a significant decline in sales of its Mercedes-Benz brand at the beginning of 2019. The increasing nervousness surrounding the production of battery cells in Germany, which Minister of Economics Altmaier is inciting to industrial policy fantasies, indicates that this need not be permanent.

Germany and its Cars, Quo Vadis?

After all, studies warn that a possible end to the combustion engine could cost many jobs: 114,000 jobs could be lost in Germany by 2035 if the transition to the electric car were to be completed, calculated the Institute for Employment Research in December 2018. In October, VW CEO Herbert Diess, on the other hand, saw 100,000 jobs endangered at VW alone because of lower limits. The Ifo Institute concluded in 2017 that 426,000 jobs in Germany depend on the combustion engine.

Germany has been a car country for more than a century. That this will remain so for the next hundred years is not a law of nature.

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Lisa Meier

Lisa Meier has more than ten years’ experience in providing strategic advice and legal guidance on international trade, administrative and legal matters to foreign companies, associations, and governments doing business in Germany. She advises companies in a broad range of industries on successfully navigating the German economic environment.

Lisa brings a wealth of knowledge to Universal Hires’ marketing and client success team. In her free time, Lisa spends time exploring the unique city-life of Berlin and all the diversity that the East of Germany have to offer.

About Universal Hires

Universal Hires is Germany’s leading staffing provider. With expertise in recruitment and employer of record services, the company levarges its market entry support.

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