Automotive News Europe - March 2020 - 10

AUTOMOTIVE NEWS EUROPE

AUTOMAKERS

Decline 'by design'
How electric shift is disrupting Germany's powerful production engine
CHRISTIAAN HETZNER
chetzner@autonews.com

he year was 1996. Helmut Kohl still
ran Germany as chancellor, Oliver
Bierhoff fired the country to its third European soccer championship and Mercedes-Benz was preparing to start production of the M-class SUV at a new U.S.
plant. That was also the last time German automakers assembled fewer than
4.66 million light vehicles on their home
soil. The 9 percent decline in 2019 production followed an equally deep drop in
2018, which combined to shave roughly
1 million units off the country's total vehicle output in just 24 months.
The rise of protectionist practices ranging from the U.S.-China trade war to
Brexit uncertainty has hit German vehicle exports. In addition, a change in
Europe's homologation rules resulted in
production delays as many popular models awaited type approval. Meanwhile, a
chaotic ramp up of the eighth-generation
Golf most likely prevented tens of thousands of cars from leaving Volkswagen's
Wolfsburg factory last year.
Nevertheless, an underlying trend could
be central to the decline, suspects LMC
Automotive Production Forecasting Director Justin Cox, especially since VW
Group, Daimler and BMW all remained
solidly profitable and each posted record
retail sales in 2019. "This sharp drop
in production is unusual in that it is not
resulting from a shock," Cox said, referring to events such as when output
in Japan was affected for months after
an earthquake-tsunami-nuclear accident
triple disaster in 2011.
Production typically snaps back in these
cases, making Germany's two consecutive
years of sharp decline suspicious. "Germany didn't experience some black swan
event," Cox added. "It's almost by design."
He believes weak export markets are only
partly to blame for the output decline. Cox
argues that automakers and suppliers
are using the slowdown as an excuse to
reduce their German footprints and better balance their geographical exposure
ahead of the costly switch to electric vehi-

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Automakers including Audi, BMW and VW produced a combined 4.66 million
vehicles in Germany last year, the country's lowest output since 1996.
cles that will require far fewer workers on
the assembly line. Earlier this year, Robert
Bosch CEO Volkmar Denner warned that
the shift to EVs will be challenging for Germany's workers. By his count, Bosch only
needs one-tenth the number of employees
to build an electric motor compared with a
diesel injection system.
Given the extensive job protections in
Germany -- and the fact that auto workers in the country earn the highest average wage globally, at nearly 55 euros
an hour -- automakers and suppliers are
acting now.
Daimler and Audi announced last November the elimination of roughly 20,000
posts, predominantly at home, where
job cuts can be done only voluntarily.
Two months earlier, supplier Continental
said that it planned to reduce its domestic staff by 7,000 over this decade, blaming the decision on the shift away from
gasoline and diesel powertrains toward
battery-powered vehicles.

"We have maybe three years before
the electric vehicle value chain is put in
place, and unions know that they need
to act now," a senior executive at a major German carmaker told Automotive
News Europe, adding that more labor
conflicts loom. "The greater the share of
jobs they can secure, the harder it will be
for us to roll this back later, since local
politicians will immediately be knocking
on our doors as soon as one whiff of an
upcoming plant closure gets out."
The auto industry's cutbacks have affected the overall economy, contributing
to Germany's tepid 0.6 percent increase
in 2019 gross domestic product. The
mini-expansion was half the average
GDP growth rate over the past 10 years,
according to official statistics.

Sounding the alarm
Companies are now sounding the alarm,
calling on policymakers to alleviate the
combined pain of exorbitant electricity

MARCH 2020

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Automotive News Europe - March 2020

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