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The automotive industry in Germany was strongly knocked by the financial and
economic crisis that emerged in 2008. Production output in the first quarter of 2009 fell
significantly compared with the pre-year period (box 2.10). This reflects the fact that
German car production is mainly export oriented; the German automotive industry depends
on the export market for the majority of its orders.
Prior to the crisis, sales of new cars were already at a historic low in Germany, and
since spring 2008 production figures were stagnating or slowly declining. According to
figures from PricewaterhouseCoopers, utilization of light vehicle production capacity in
Germany declined from 90 per cent before the crisis (2007) to 75 per cent now.
The current crisis is expected to accelerate in particular three paradigmatic changes
affecting the German automotive industry:
_ new markets developing in emerging economies;
_ new global players, mostly from emerging economies, enter the stage; and
_ new customer expectations are changing the markets.
The crisis hit the German automotive suppliers hard. According to a recent study by
the German Association of Car Manufacturers almost all German automotive suppliers
reported losses in the first quarter of 2009. The suppliers are highly dependent on export
orders, therefore the cutbacks on capital-intensive stock by original equipment
manufacturers (OEMs) led in many cases to a complete cessation of orders. The numbers
of employees have also been significantly reduced by most supplier companies. Temporary
staff and contract workers were the first to go; this in a context where 70 per cent of
employees of German automotive suppliers are on short-term contracts.
Many well-known players in the German automotive industry are in trouble. Daimler
is an example among the car manufacturers (box 2.11).
Most car manufacturers were not able to disconnect from these negative market
trends, but some OEMs performed better than others. In 2008, only seven car manufacturer
groups had above average car sales and so correspondingly increased their market share.
Only Nissan could increase car registrations, whereas the sales decline of Mazda, BMW,
Volkswagen, Renault, Fiat and Daimler were above average. During the first months of
2009, the low-cost or volume-based OEMs had above average market performance due to
shifts in customer demand, largely towards inexpensive models and fuelled by government
Measures to cope with the crisis
In Germany, automotive market trends are ambivalent. In the year 2007, i.e. before
the crisis, passenger car registration had already dropped to its lowest level since
reunification, with 3.15 million registrations. In 2008, another all-time low was reached,
with only 3.09 million cars sold. In 2009, the downturn trend initially continued in
January. But the introduction of a generous scrappage incentive by the German
Government caused car registration to skyrocket (box 2.12). Car sales in February, March
and April increased up to 40 per cent compared with the pre-year-period. Only the mini,
small and lower-middle segments profited from these trends, with sales figures increasing
by up to 120 per cent (mini segment). As expected, the scrappage incentive had practically
no effect on more expensive cars. Consequently, sales of BMW and Mercedes cars further
declined. However, the trend towards increased sales in the low-priced car segments and
an above average reduction in sales in the higher-price segment (except SUVs) was already
perceivable in 2008.
The scrappage incentive in Germany has therefore been a short-term success in terms
of stabilizing car sales. Low-cost car manufacturers and car retailers in particular have
benefited from the incentive. It can be expected that passenger car registrations in 2009
will increase to at least 3.2 million units.
The mid- and long-term effects of the scrappage incentive are, however, expected to
be strongly negative. According to a recent study, 75 per cent of the purchases can be
accredited to "windfall gains". Car buyers have predominately brought forward their
purchase of a car to profit from the government incentive. Many switched from buying a
two to three-year-old used car to a new or one-year-old car, which in turn reduced the price
level for older cars. Interestingly, despite the government incentive, sales discount levels in
Germany (about 16 per cent) remained high. The distortion of the price signal by high
discount levels and scrappage incentives will have negative effects on customer
expectations in the future.
Whereas car registrations in Germany will increase in 2009, car sales will reach an
all-time low in 2010. This will be due to the abolition of the scrappage incentives, the pullforward
effects in 2009 and the expected increases in unemployment rates in 2010.
Employment implications and human effects of the crisis
The automotive industry in Germany provides direct employment for 750,000
workers. Between 2000 and 2008, employment in the car manufacturers decreased by 6 per
cent. However, the supplier industry in Germany overcompensated for the decline in the
OEM workforce thanks to a shift in value added from OEM to first- and second-tier
suppliers combined with a strong export success of the branch.
The latest data on the crisis show that effects on employment are not that pronounced
at the moment (box 2.13), although the automotive industry has been hit harder than the
manufacturing sector overall. Unemployment in Germany has been cushioned through
short-time working arrangements subsidized by the government.
There has been a large increase in short-term working in the German manufacturing
sector. Three-quarters of all applications for short-term working in Germany have been in
the manufacturing sector, and the automotive industry is the most prominent employer of
There are many prognoses on how many employees in the German automotive
industry will become unemployed. Estimates range from 50,000 to 100,000 in the
forthcoming 24 months, which accounts for up to 15 per cent of the employees. However,
quantifying the human effects of the economic crisis is difficult. They are highly
dependent on state incentives and company funds (loans) as well as the point in time and
extent of the recovery of the global economy.
Conclusions on the German automobile industry
The automotive markets in Germany and Western Europe were strongly knocked by
the financial and economic crisis starting in 2008. Sales figures for the three largest
markets - Germany, France and Italy - are however softening the devastating situation in
Europe; new car registrations in France declined only 5 per cent. And thanks to a generous
scrappage incentive, German car sales are already up 18 per cent.
The sales decline in the German industry came very rapidly, was very deep and
affected all regions. The German automotive industry was very vulnerable because of:
_ its massive dependence on exports; and
_ the interdependence of OEMs and suppliers.
Due to the crisis, the trend for further consolidation of car manufacturers will be
accelerated, including in Germany. The consolidation of car manufacturers and the rising
relevance of China and India will have important effects on employment in the German
automotive industry. The human effects of the dramatic decline in production are
significant. Nevertheless, it is important to bear in mind that - independent of the actual
economic crisis - the global car industry is undergoing paradigmatic changes.