How Germany’s critical car industry could stall Europe’s biggest economy?

 We are still feeling the weight of a collapsing real estate bubble in China, hence cyclical elements including lower demand from China are also helping to explain the low statistics for China. For instance, last year Germany gave people buying electric cars rebates. But financial restrictions imposed by the German government stopped these subsidies at the end of the year. As so, we saw a drop in German electric vehicle sales this year without these subsidies. Other European countries also show this tendency clearly. Structural and cyclical elements both help to explain the present difficulties German automakers have in vying with China in the market.

German economy is not only suffering in the automotive sector; other sectors also find challenges. Fascinatingly, Germany launched "Industry 4.0" years ago to revamp its manufacturing sector. China started a similar project known as "Strategy 2025," concentrating on several industrial sectors including automotive and electric cars, coincidentally. The distinction is in China's large investments relative to Germany's largest financial contribution. Chinese investments are therefore proving to be profitable; Chinese cars are now fierce rivals of German and European manufacturers in several sectors, not only automotive.

Germany has been sluggish to change, but its industrial strength inside Europe makes it especially vulnerable to Chinese competitiveness. With similarly vital manufacturing sectors like automotive, France and Italy are less exposed to China than Germany. Germany used to export about 8% of its whole exports to China before the epidemic; this ratio has dropped to almost 5 to 6%. Reduced demand from China and China's competitive edge in manufacturing goods at lower prices than Germany help to explain this case.

Following recent announcements of Volkswagen ending a long-standing employment security pact with trade unions in Germany, the possibility for plant closures and operational redundancies has first surfaced in decades. This change begs questions on a return to the labor battles of the 1970s. Following a time when demographic trends and labor shortages gave workers power in pay talks, the tide may be shifting in favor of companies since structural changes in different sectors may cause job losses.
The government of Germany might offer temporary help to the automotive sector by means of automobile scrappage programs, customized subsidies for electric vehicles, and incentives for house charging stations. These temporary fixes, meanwhile, won't help to relieve the structural strain caused by Chinese competitiveness. Long-term plans might call for following European recommendations on stopping conventional automobile engine manufacture and investigating protectionist policies against rivals from China. Although difficult, it is premature to declare German automakers dead. The German automotive sector has always shown resilience and adaptation even when structural changes and more competition challenge it.

Although technical developments presented obstacles for Nokia and Kodak decades ago, it is premature to project the demise of the German car sector. German automakers are still engaged in fewer numbers even if the industry has become more competitive. The sector is experiencing a longer-term structural change and more competitiveness, which calls for strategic survival actions. Chief Economist for ING Germany Carsten Brzeski underlines the importance of German businesses, particularly automotive, in overcoming obstacles and aiming for sustainability within changing market conditions.