Crisis in the German Automotive Industry

Germany's automotive industry, historically one of the strongest in the world, is currently facing significant challenges. Car sales have declined, while production costs have soared. As a result, companies like Volkswagen AG $VOW.DE and Mercedes-Benz Group AG $MBG.DE are struggling to transition to electric vehicles.

Ambiguous Economic Reality

With threats from U.S. President Donald Trump regarding potential tariffs on German cars, automotive executives are banking on the elections scheduled for February 23. They hope that a new government in Germany will alleviate the industry's burdens.

Impact on the Economy

The automotive sector represents a crucial part of the German economy, accounting for about 5% of GDP and employing nearly 780,000 people. However, in the current context, forecasts remain bleak. Many automakers are cutting costs, revising product lines, and making leadership changes.

Reasons for the Crisis

The present state of the German automotive industry can be attributed to several factors:

• Increased competition from China;

• Declining demand for electric vehicles in Europe;

• Rising production costs.

These elements, combined with shifts in the global market, create challenges for companies that once held dominant positions.

Performance in the U.S. Market

Despite the tough situation in Europe, many German automakers continue to thrive in the American market. High demand for large SUVs makes this segment profitable for BMW $BMW.DE, Porsche $P911.DE, and Mercedes-Benz. German companies operate numerous plants in the U.S., producing cars for both local consumers and export.

Risks of Trade Conflicts

There is a possibility that the trade rift with the United States could further complicate matters if Europe implements retaliatory measures. German automakers may face new challenges, which they are striving to avoid.

Recovery Strategies

German automakers remain undeterred and continue to attract investments. Main strategic steps include:

1. Collaborating with local companies;

2. Increasing electric vehicle production;

3. Expanding manufacturing capacity in China.

For instance, Volkswagen plans to boost its annual vehicle sales in China to 4 million by 2030, up from 2.93 million last year. Meanwhile, BMW aims to invest an additional 20 billion yuan (approximately $2.7 billion) in its manufacturing facility in Shenyang.

The crisis in the German automotive industry highlights the urgent need for rapid adaptation to changing market conditions. Automakers must focus on innovation and capacity building to maintain their positions and continue growing amid increasing uncertainty.