Automotive News Europe - March 2020 - 11

AUTOMOTIVE NEWS EUROPE

AUTOMAKERS

costs and above-average tax burdens.
"It's crucial that politicians start improving underlying business conditions rather than just announcing them," Bernhard
Mattes, the German auto industry's former chief political lobbyist, warned before stepping down as VDA boss at the
end of last year.
What makes the decrease in production
more peculiar is that domestic retail sales
hit a 20-year high in 2019, if one excludes
a sales boom in 2009 caused by government scrapping incentives to energize
demand during the global financial crisis.
Demand last year was even stronger than
in 2006, when customers rushed to buy
cars before Germany enacted its largest
tax hike in more than 70 years.
The plunge in exports was a key reason for the decline, as three of every
four cars manufactured in Germany are
shipped to customers abroad. Brexit uncertainty, for example, has contributed
to a 230,000-unit drop in vehicle sales
in the UK, the single-biggest destination
for German-built cars.
Emerging economies have also contracted.
For the second year in a row car sales declined in China, which hits upscale models
such as Mercedes' flagship S class sedan
that are imported from Germany. Closer
to home, sales in Turkey, a key source of
demand for the Volkswagen Passat sedan,
fell by 23 percent last year.

Decision to destock
What is unclear, however, is what came
first. Did the weakness in export markets
trigger the production slump or viceversa? Orders for domestic-built models
received from customers abroad declined
at less than half the actual rate of shipments last year, suggesting a conscious
decision to destock inventories.
Companies such as VW, Daimler and
BMW have shifted more production overseas to better serve local customers and
protect against currency fluctuations.
BMW started building the popular 3-series sedan in Mexico last year, a model
that was previously exported to the U.S.
from Germany.
VW, which has prioritized profit margins
over volume, chose not to chase export
volume as the Turkish market weakened.
Sales of the Passat and Golf -- both built
in Germany -- halved in line with the overall industry during the last two years. To
better compete in Turkey, the automaker
is still mulling whether to build a new factory in Manisa for an estimated 1 billion

MARCH 2020

HIGH EARNERS

euros. The factory would serve as a natural hedge against the weak lira.

German auto workers take home
the highest average wage globally;
2019 salary per hour in euros

The export decline is not just hitting German brands. LMC's Cox pointed out that
non-German automakers such as Ford
have also struggled. Neither of Ford's
two factories in Germany produce SUVs,
which remain a favorite of buyers around
the world. In addition, the U.S. carmaker
ended production in Saarlouis of the
C-Max and Grand C-Max in response to
a sharp decline in demand for minivans.

Germany
54.93
Sweden
43.10
Austria
42.23
Belgium
41.66
France
41.05
Netherlands
38.19
USA
38.16
Great Britain
32.31
Finland
30.66
Italy
30.38
Japan
29.51
Spain
26.00
Slovenia
17.85
Czech Republic
16.08
Slovakia
14.57
Portugal
14.28
Hungary
12.76
Poland
11.10
Romania
8.21
Source: Eurostat, national agencies

ASSEMBLY
ADJUSTMENTS
Notable changes that contributed
to Germany's 2-year vehicle
production decline; outlook
Combined volume at Opel's Eisenach
and Russelsheim plants is estimated to
have halved between 2016 and 2019,
a decline of about 130,000 units. Outlook: New model introductions could
fully recover lost volume by 2022

●

Volume at VW's Wolfsburg plant
dropped by about 130,000 between
2016 and 2019. Outlook: Start of new
Golf production plus addition of Golf
output formerly assigned to two other
plants could push volume back to the
level achieved in 2016

●

Combined volume at Ford's Cologne
and Saarlouis plants is about a quarter
of that in 2016. Outlook: Without new
models, volume unlikely to recover in
the midterm

●

Volume at VW's Zwickau factory
estimated to be 100,000 units lower
in 2019 than in 2016. Outlook: Plant
will switch to making electric vehicles
so volume will depend on the pace of
growth for the sector

●

Volume at Audi's Ingolstadt factory
estimated to have declined by a quarter
between 2016 and 2019. Outlook:
Some recovery is expected in the midterm but the loss of the Q5 SUV
may prove impossible to overcome

●

Source: LMC Automotive research

Opel has also struggled to maintain output at its plant in Rüsselsheim, which
lags manufacturing cost parity with a sister plant in Sochaux, France, by at least
60 percent, PSA CEO Carlos Tavares
said. In January, Opel announced plans
to reopen a voluntary leave program for
employees at plants in Ruesselsheim,
Eisenach and Kaiserslautern. The aim is
to cut up to 2,100 jobs.
"Combined with a high exposure to the
contracting UK market, this has seen
Ford and Opel account for a combined
30 percent of the annual drop in German
production since 2016," LMC's Cox said.
He forecasts a bottoming out for production, with a 4 percent gain in output for
this year helped by the recent actions
taken by automakers in Germany.
Despite those measures, German exports fell an additional 11 percent in January, impacting production once more.
That means both output and shipments
abroad for that specific month have
sunk by more than a quarter since 2017.
Unfortunately, Germany's problems reflect
an overall industry trend. Bosch's Denner
said he was positioning his company for
a long drought, forecasting automakers
worldwide will build just 89 million cars in
2020. This would equate to a cumulative
10-million-unit drop over the past three
years. "We do not forecast a rise in global
automobile production before 2025," he
told reporters in late January. "It's possible
that we have already passed the peak in
terms of car production."
While the move toward electric vehicles
has put many jobs in Germany at risk
it has also created new opportunities.
Germany's "strong manufacturing and
engineering" were cited as key reasons
why it was recently picked by Tesla over
the UK and other rivals for the electric
car maker's first European production
site. The factory, which will be near Berlin, could be churning out Model 3s and
Model Ys as early as next year. ANE

www.autonewseurope.com

http://www.autonewseurope.com

Automotive News Europe - March 2020

Table of Contents for the Digital Edition of Automotive News Europe - March 2020