Article:
“The future of the vw brand is at stake.” When Thomas Schäfer, the mass-market marque’s newish boss, gave a presentation to his management team in early July, he did not sugarcoat its problems. High costs, falling demand, growing competition—the list goes on. “The roof is on fire,” he warned, echoing one of the most noted alarm calls in recent business history—from Stephen Elop, who in 2011 compared his company to a “burning platform” shortly after taking the helm at Nokia, then the world’s largest maker of mobile phones.
In the case of Nokia, the wake-up call did not help. A few years later the firm was dismantled and its mobile-phone business sold to Microsoft, which has since closed it down. Could mighty vw, its mightier parent group, which owns nine other brands, or even Germany’s mightiest industry as a whole really suffer a similar fate? And if it did, what would that mean for Europe’s biggest economy?
An imminent implosion of the car industry seems unlikely. In 2022 Volkswagen was the world’s largest carmaker by revenue, giving it plenty of cash to support its biggest brand. On July 27th it reported that sales rose by a healthy 18% in the first half of 2023, year on year, to €156bn ($174bn). bmw and Mercedes-Benz, Germany’s two other big automotive concerns, are in decent nick.
Yet disaster is no longer inconceivable. German industrialists are feeling real angst about the future. In July an index of business confidence from Ifo Institute, a think-tank, fell for the third consecutive month. German bosses echo Mr Schäfer’s list of concerns and add other gripes, from bunged-up bureaucracy to the delicate geopolitics of trade with China.
Carmakers are more exposed to these challenges than most industries, as they are having to negotiate several transformations at once. They must electrify their fleet, for instance, and learn to develop software. As these trends play out, more of the value added is likely to come from elsewhere. Industry insiders admit that factories will have to shrink or even close down, as will many suppliers, especially those which make parts for internal combustion engines and gearboxes.
Germany’s car industry must also tackle its growing China problem. Having benefited from the Asian giant’s rapid growth in recent decades—in the second half of 2022 Germany’s three big car companies made around 40% of their revenue there—they are now suffering from a reversal of fortunes. Volkswagen has just cut its global delivery forecast owing chiefly to slowing Chinese sales. Geopolitics are liable to make things worse. And Chinese rivals have started expanding abroad, particularly in Europe. Last year, for the first time, China exported more cars than Germany: around 3m and 2.6m vehicles, respectively.
Driven to extinction?
All these problems are coming together in Wolfsburg, home to Volkswagen’s headquarters—and thus the roof in Mr Schäfer’s metaphor. According to press reports, orders for the group’s evs are between 30% and 70% below plans, depending on the marque. The firm still has to sort out its software problems: in May it again shook up the management team of Cariad, its digital unit. In China’s fast-growing market for evs, the vw brand is an also-ran, with a market share of 2%.
The consequences of carmakers’ potential demise depend on how big you think the industry is. Carmaking directly employs fewer than 900,000 people in Germany, two-thirds of them at the car firms and the rest at their suppliers. That is just 2% or so of Germany’s total workforce. Nearly three-quarters of passenger cars sold under a German brand are now made abroad. Last year a mere 3.5m vehicles left local factories—about as many as in the mid-1970s.
Worried industry insiders point to alternative measures. More than half of the eu’s carmaking gross value added is produced in Germany, miles ahead of France, which is second with 9%. Cars account for 16% of German exports of goods. And although the economic importance of Germany’s car industry peaked at 4.7% of the country’s gross value added in 2017, the share was still at 3.8% in 2020, the last year for which data are available, calculates Nils Jannsen of the Kiel Institute, a think-tank. According to other estimates, this is about a percentage point more than other carmaking powerhouses such as Japan and South Korea.
Moreover, zeroing in on narrow industry numbers misses the sector’s true importance for Deutschland ag. “It’s an operating system of sorts,” explains Oliver Falck, who runs the Ifo Centre for Industrial Organisation and New Technologies. “Important parts of the German economy and its institutions rely on it,” he says.
For starters, direct suppliers are not the only ones to depend on Volkswagen and its peers. More recent numbers are hard to come by, but according to a study in 2020 by Thomas Puls of iw, another think-tank, and others, global demand for German cars accounted for more than 16% of the value added of Germany’s metal bashers and plastics makers. They also estimated that such global demand indirectly paid for another 1.6m jobs, bringing the total number of people supported by the car industry to 2.5m, more than 5% of the German workforce.
German investment and innovation are tied to the country’s carmakers. The car industry accounted for 35% of gross fixed capital formation in manufacturing in 2020, according to iw. In 2021 the sector was the source of more than 42% of manufacturing research and development and paid for 64% of all r&d conducted by other firms and research institutions, based on numbers from the Stifterverband, an association mostly of research foundations. According to iw, carmakers accounted for nearly half of corporate patent filings in 2017, up from a third in 2005.
VW has long, ever, focused on hardware. And it’s good. It’s one of the best. Now it’s time to focus on software.
It would make less tacky BMW/Audi/Mercedes driven by drug dealers and wannabee street racers
I would be sad but they will be replaced
If that happens, we may never find out exactly how large a grill a car can have and still retain basic functionality.
Maybe they have to come to terms with the fact, that you cant build an entire economy on the principle that everyone buys a new car every 7 years and expect this to work in perpetuity
What if France stopped making airplanes?
They wouldn’t make airplanes anymore
It’s fine honestly. I heard China was stepping up their auto game so maybe just buy from them
9 comments
Article:
“The future of the vw brand is at stake.” When Thomas Schäfer, the mass-market marque’s newish boss, gave a presentation to his management team in early July, he did not sugarcoat its problems. High costs, falling demand, growing competition—the list goes on. “The roof is on fire,” he warned, echoing one of the most noted alarm calls in recent business history—from Stephen Elop, who in 2011 compared his company to a “burning platform” shortly after taking the helm at Nokia, then the world’s largest maker of mobile phones.
In the case of Nokia, the wake-up call did not help. A few years later the firm was dismantled and its mobile-phone business sold to Microsoft, which has since closed it down. Could mighty vw, its mightier parent group, which owns nine other brands, or even Germany’s mightiest industry as a whole really suffer a similar fate? And if it did, what would that mean for Europe’s biggest economy?
An imminent implosion of the car industry seems unlikely. In 2022 Volkswagen was the world’s largest carmaker by revenue, giving it plenty of cash to support its biggest brand. On July 27th it reported that sales rose by a healthy 18% in the first half of 2023, year on year, to €156bn ($174bn). bmw and Mercedes-Benz, Germany’s two other big automotive concerns, are in decent nick.
Yet disaster is no longer inconceivable. German industrialists are feeling real angst about the future. In July an index of business confidence from Ifo Institute, a think-tank, fell for the third consecutive month. German bosses echo Mr Schäfer’s list of concerns and add other gripes, from bunged-up bureaucracy to the delicate geopolitics of trade with China.
Carmakers are more exposed to these challenges than most industries, as they are having to negotiate several transformations at once. They must electrify their fleet, for instance, and learn to develop software. As these trends play out, more of the value added is likely to come from elsewhere. Industry insiders admit that factories will have to shrink or even close down, as will many suppliers, especially those which make parts for internal combustion engines and gearboxes.
Germany’s car industry must also tackle its growing China problem. Having benefited from the Asian giant’s rapid growth in recent decades—in the second half of 2022 Germany’s three big car companies made around 40% of their revenue there—they are now suffering from a reversal of fortunes. Volkswagen has just cut its global delivery forecast owing chiefly to slowing Chinese sales. Geopolitics are liable to make things worse. And Chinese rivals have started expanding abroad, particularly in Europe. Last year, for the first time, China exported more cars than Germany: around 3m and 2.6m vehicles, respectively.
Driven to extinction?
All these problems are coming together in Wolfsburg, home to Volkswagen’s headquarters—and thus the roof in Mr Schäfer’s metaphor. According to press reports, orders for the group’s evs are between 30% and 70% below plans, depending on the marque. The firm still has to sort out its software problems: in May it again shook up the management team of Cariad, its digital unit. In China’s fast-growing market for evs, the vw brand is an also-ran, with a market share of 2%.
The consequences of carmakers’ potential demise depend on how big you think the industry is. Carmaking directly employs fewer than 900,000 people in Germany, two-thirds of them at the car firms and the rest at their suppliers. That is just 2% or so of Germany’s total workforce. Nearly three-quarters of passenger cars sold under a German brand are now made abroad. Last year a mere 3.5m vehicles left local factories—about as many as in the mid-1970s.
Worried industry insiders point to alternative measures. More than half of the eu’s carmaking gross value added is produced in Germany, miles ahead of France, which is second with 9%. Cars account for 16% of German exports of goods. And although the economic importance of Germany’s car industry peaked at 4.7% of the country’s gross value added in 2017, the share was still at 3.8% in 2020, the last year for which data are available, calculates Nils Jannsen of the Kiel Institute, a think-tank. According to other estimates, this is about a percentage point more than other carmaking powerhouses such as Japan and South Korea.
Moreover, zeroing in on narrow industry numbers misses the sector’s true importance for Deutschland ag. “It’s an operating system of sorts,” explains Oliver Falck, who runs the Ifo Centre for Industrial Organisation and New Technologies. “Important parts of the German economy and its institutions rely on it,” he says.
For starters, direct suppliers are not the only ones to depend on Volkswagen and its peers. More recent numbers are hard to come by, but according to a study in 2020 by Thomas Puls of iw, another think-tank, and others, global demand for German cars accounted for more than 16% of the value added of Germany’s metal bashers and plastics makers. They also estimated that such global demand indirectly paid for another 1.6m jobs, bringing the total number of people supported by the car industry to 2.5m, more than 5% of the German workforce.
German investment and innovation are tied to the country’s carmakers. The car industry accounted for 35% of gross fixed capital formation in manufacturing in 2020, according to iw. In 2021 the sector was the source of more than 42% of manufacturing research and development and paid for 64% of all r&d conducted by other firms and research institutions, based on numbers from the Stifterverband, an association mostly of research foundations. According to iw, carmakers accounted for nearly half of corporate patent filings in 2017, up from a third in 2005.
VW has long, ever, focused on hardware. And it’s good. It’s one of the best. Now it’s time to focus on software.
It would make less tacky BMW/Audi/Mercedes driven by drug dealers and wannabee street racers
I would be sad but they will be replaced
If that happens, we may never find out exactly how large a grill a car can have and still retain basic functionality.
Maybe they have to come to terms with the fact, that you cant build an entire economy on the principle that everyone buys a new car every 7 years and expect this to work in perpetuity
What if France stopped making airplanes?
They wouldn’t make airplanes anymore
It’s fine honestly. I heard China was stepping up their auto game so maybe just buy from them
then toyota will take over
simple