The crisis in the German automotive sector is deepening
The results of the Business Climate Survey published by the Munich-based Institute for Economic Research (Ifo) show that the German automotive sector is going through a difficult period. The business climate index, which was minus 28,6 points in October, fell by 3,5 points to minus 31,1 points in November. In addition, the sector's current situation index fell by 4,9 points to minus 33,9 points. Business expectations for the coming months increased from minus 28,2 points to minus 30,4 points.
The survey emphasizes that companies evaluated their current business situation much more negatively in November compared to October. At the same time, it was stated that companies have a more pessimistic perspective for the coming months. While it was stated that the main reason for the pessimistic atmosphere in the automotive sector is weak demand, it was stated that “The crisis in the automotive sector is also reflected in labor demand. Although the employment expectations indicator increased slightly compared to the previous month, it fell to the lowest level in the long valley with minus 34,1 points.”
Companies Are Pessimistic About Foreign Trade
Despite Donald Trump being elected as US President with the threat of high import tariffs, the export expectations barometer of the companies participating in the survey showed a significant increase, rising from minus 31,3 points in October to minus 19,2 points in November. Ifo Center for Industrial Organization and New Technologies Expert Anita Wölfl commented on the subject, “The sector is stuck in the complex structure of a wide-ranging transformation, intense competition and a weak economy. Large orders that companies in the automotive sector have accumulated since the beginning of 2021 due to the pandemic and supply chain problems are being processed. New orders are coming in, but these orders are not enough to use the capacity.”
It is stated that many companies in the automotive sector are avoiding hiring new employees or are considering layoffs. “Companies are waiting to see how trade policy (under Trump’s presidency) will develop,” said Wölfl. Ifo’s statement indicated that the strong appreciation of the dollar in the US since the election could benefit exporters.
Europe’s Automotive Industry Faces Challenges
German carmakers are under severe pressure to cut costs and remain competitive in light of weak demand from China and Europe, while struggling to cope with the high costs of the transition to electric vehicles. The emergence of groundbreaking technologies in the car industry from China and the US in recent years has sparked debate in the European public, while increasing competition from Chinese manufacturers has led to historic layoffs and factory closures at German carmaker Volkswagen. Volkswagen’s decision deepens the crisis in the German car industry, with the sector at risk of losing its competitiveness in the country due to high tax rates, rising electricity prices and extensive bureaucracy.
Volkswagen, Europe’s largest automaker, is planning to close its first factory in Germany and lay off workers due to high production costs. In addition, Donald Trump, who will be sworn in as US President again, aims to significantly increase customs duties in order to reduce the foreign trade deficit and support domestic production if he wins the election. Trump wants to impose a 10% or 20% customs duty on all imports from the EU. The US is the largest buyer of German goods, with around 10% of Germany’s exports going to the country.
US Top Buyer of German Car Exports
On the other hand, companies in Germany continue to restructure and lay off employees. Volkswagen, Bosch, Continental and ZF Friedrichshafen are among the companies that have announced layoffs. German automotive and industrial supplier Schaeffler announced on November 5 that it will lay off 2 people in Europe, 800 of whom will be in Germany. On November 4, Bosch, one of the major suppliers to the automotive sector, announced that it will lay off 700 people worldwide, 23 of whom will be in Germany, in its automotive unit, and that short-time work will also be implemented in its production facilities.
The German economy remains fragile, particularly due to persistent weakness in the manufacturing sector, which plays a larger role than in other countries in the region. The country’s economy, which shrank by 0,3 percent in the second quarter of the year, managed to avoid a technical recession by growing by 0,2 percent in the third quarter. While the crisis in the German automotive industry emerged from a complex interplay of overlooked trends, structural problems, and geopolitical risks, the automotive industry was once the backbone of the German economy. The sector accounts for 5 percent of total value added and 3 percent of employment in Germany. In terms of revenue, it stands out as the largest industrial sector by far. German automotive manufacturers exported 272,6 billion euros last year, equivalent to 17,3 percent of total exports. As of June 2024, the German automotive sector employed approximately 773 people, excluding suppliers, while employment in the sector decreased by 2023 percent compared to 0,8. Approximately 14 percent of those working in the industry work in the automotive sector, making it the second largest industrial sector in terms of workforce after mechanical engineering, which employs 952 thousand people.
