German car industry facing another year of ‘bad weather’?
2018 was a ‘annus horribilis’ for the German car industry. But will 2019 be better or is Germany’s number one industry structurally ill?
“For the car industry 2018 is a year to forget as quickly as possible”, says Ferdinand Dudenhöffer from CAR, Centre for Automotive Research at University of Darmstadt, a renowned car industry analyst. “It was also the first time that a German car CEO was taken into custody”, he adds, referring to the acute fall of Rupert Stadler at the head of Audi this year.
Not recovered yet from dieselgate
Three years after Dieselgate, the German industry seems not to have recovered yet. Never before the worth of German cars diminished so fast, also because of the driving prohibition for diesels in a lot of the bigger German cities.
“A historical decision”, says Dudenhöffer, “in the country where Rudolf Diesel has invented the engine, the diesel is finally put on the waste dump.”
From all sides
The dangers for the German car industry came from all sides: a looming Brexit scenario, the growing Turkish market that collapsed, Trump threatening with a trade war, the industry not being ready to implement the transfer to new (WLTP) emission regulations.
“A few years ago it would have been unthinkable that German car manufacturers weren’t able to deliver because of an announced rule change”, comments Dudenhöffer.
According to the analyst the German car industry is now sandwiched between the receding market in China (first time in 18 years) and the need to invest hugely in the electrification of the car. And the end is not in sight yet: “The coming years the profits of the manufacturers will steeply decrease”, Dudenhöffer expects.
Stock markets have already reacted. In the whole sector there were profit warnings and share values went down for everybody. Not only for the manufacturers themselves but also for their suppliers like Bosch and Continental.
To make things worse demand for new cars is slowing down everywhere and margins are under pressure because of the necessary switch to electro-mobility.
Slowly this electro-mobility is breaking through, but it’s China and the US that are leading, Germany has fallen behind. “BMW was one of the first to begin with electro-mobility”, says Roland Berger, a company adviser, “but apparently due to internal struggles they forgot to develop cars with a far better range and a more attractive design.”
So now German manufacturers have to catch up as soon as possible. In the next three years they will launch some hundred electrified models and the expectation is that already in 2025 one quarter of the German market will be fully electric.
The German car industry, the most important industry for the country, produces one out of five cars worldwide and generated 400 billion euro of turnover in 2017, but there are question marks whether this figure will be repeated this year. The German industry has to undergo a profound transformation.
Carsten Brzeski, head economist at ING Germany, sees also opportunities. “A year ago analysts said things couldn’t go better, now negativity is the trend. But the challenges can also turn into opportunities.”
“The cooling down of the economy in the year 2019 can lead to an interesting change in the German economical policy. After years of economical rigour Germany could be the next European country, after Italy and France, to choose for a more active financial policy.
If the consolidation in the banking sector continues, Germany could show another face in 2019”, Brzeski concludes, citing the famous Dutch football player Johan Cruyff: ‘Every setback is an opportunity’.