Germany’s once-mighty car industry is in crisis. What will it take to fix it?

The German automotive industry, long a symbol of the nation’s economic strength, is currently facing a crisis marked by declining production, sales, and profits. To address these challenges and regain its former prominence, the industry must adapt to technological advancements, shifting global markets, and internal inefficiencies.
Challenges
Decreasing Production and Sales: Vehicle production in Germany has fallen from 5.65 million in 2017 to 4.1 million in 2023. Top German brands like Volkswagen, Mercedes-Benz, and BMW have experienced significant sales declines between 2017 and 2023.
Electric Vehicle Transition: The shift to electric vehicles (EVs) requires substantial investments, but consumer demand has not kept pace, and international competition is increasing. Uncertainty among automakers and consumers regarding this transition is compounded by inconsistent government strategies on electromobility, such as the abolition of subsidies for EV purchases.
Supply Chain Issues: Bankruptcies among auto parts suppliers are increasing, highlighting the fragility of the supply chain. Many firms are ill-equipped to handle the electrification transition due to funding shortages, high costs, and low profits.
Economic Factors: A recession in Germany, high energy costs, and excessive bureaucracy are impacting the automotive industry.
Job Losses: Due to the EV transition and related challenges, the German auto industry could lose approximately 186,000 jobs by 2035 compared to 2019. The industry already lost 46,000 jobs between 2019 and 2023.
Potential Solutions and Strategies
Innovation and Adaptation: Capitalizing on technological breakthroughs and adapting to shifting global markets is crucial for retaining a leading position in the automotive industry.
Government Support: Swift political action is needed, including less bureaucracy, more trade agreements, a competitive tax system, and simpler, faster approval processes4. A clear government strategy on electromobility is also essential.
Market Diversification: Presence in dynamic markets like China and the U.S. is vital for the industry’s success.
Efficiency and Competitiveness: Germany must be at least as innovative as it is expensive, implying a need to address high labor costs and improve productivity.
Address Structural Problems: The industry needs to tackle many structural problems simultaneously.
Electrification goals: Balancing short-term interests with long-term electrification goals will shape its future competitiveness.