The German car industry: the social compromise at risk?

While the French automotive industry is going, this Monday, to try to understand what awaits it and try to put pressure to receive all the support it needs, news from our German neighbours converge to indicate that the coming years will be difficult for both automakers and equipment manufacturers.

 

 After Audi announced early last week that it would reduce its workforce by 9,500 by 2025, Daimler announced on the weekend that it would cut 10,000 jobs by 2022. A few weeks ago, Continental also announced a plan to reduce its workforce by 20,000 (out of a total of 244,000 people), including 7,000 in Germany. "In total," says RFI, "in recent months, the main car manufacturers and equipment manufacturers have planned nearly 30,000 job cuts.

 

"And this is only the beginning. According to a study published last year by the German Employment Service, some 114,000 jobs will be lost by 2035 due to the switch to electric cars. The German Automobile Industry Union (VDA) has warned that 70,000 jobs will be threatened in the country over the next five years as companies abandon the production of ICE-powered cars," wrote Wansquare.

 

Even if the French situation is not reassuring, it is not quite comparable for at least three reasons.

 

The first is that the size and dynamics of the two industries have, in fifteen years, become very different: whereas in 2000, France was producing 3.3 million light vehicles and Germany 5.5 (1.8 times more), in 2015, France produced less than 2 million vehicles and Germany more than 6: the ratio rose to 3. Direct employment in Germany remains above 800,000 people, while in France it is just over 200,000. Automobile manufacturing, which employed almost 200,000 people in 2000, employed only 119,000 in 2015. 
In short, we have less to lose in the crisis because our automotive industry has already declined very sharply over the past 15 years. Indeed, while German groups have become internationalised, both in Europe and globally, preserving their domestic bases, French groups have made extensive use of relocations in the EU and beyond (Turkey and Morocco).

 

As a result, the contribution of the automotive industry to GDP, employment and foreign trade is central and positive in Germany, while it has become relatively small in France and, in the long term, rather negative. In terms of foreign trade, it should be recalled that since 2008, the French automobile industry has been in deficit and, as INSEE recently indicated, this deficit is widening and the automobile industry is losing places in Europe. The note also indicates that:
Multinational groups categorised as automakers in France are net exporters of passenger cars (balance of €2.9 billion). However, imports by these groups of passenger cars are high (€10.1 billion) compared to their domestic production (€18.9 billion). These imports by multinational groups categorised as automakers in France thus represent more than a third of total imports of passenger cars."
Thus, the drop in volumes sold in Europe expected in 2020 will have less impact on volumes produced in France than the offshoring decisions that have been taken, again, this time for the 208 or Clio 5. This is not the case in Germany.

 

The second reason is that French sites are only concerned by European markets while both German and English sites export outside the EU. Thus, in 2017, the German industry exported $64 billion worth of car parts, $24bn of which were exported outside the EU ($9.45bn to China and $5bn to the United States) and $158bn worth of vehicles, $67bn of which were exported outside the EU ($13.6bn to China and $21.7bn to the United States).
In the same year, the French car industry exported $18.4 billion worth of parts, $3bn of which were exported outside the EU ($500m to Turkey and $379m to China) and $24bn worth of vehicles, including $2.8bn outside the EU ($190m to China and $204m to the United States).
Commercial risks in China and the United States concern German industry, whose exports to these two destinations account for $50bn - almost 80% of Renault's global turnover. They do not concern French industry.

 

Similarly, the hypothesis of a hard Brexit is much more problematic for Germany than for France. In 2017, France sold only $1.4bn worth of parts and $1.6bn worth of vehicles to the British. The equivalent figures for Germany are $4.7bn and $20.3bn. The market shares of German brands in the United Kingdom are around 30% where PSA is at 6% and Renault at 4%.
Cars of German brands are mostly assembled in Germany, those of French brands very partially.

 

Beyond these first two reasons, which concern the French and German industrial sites, there are the firms themselves. The French and German equipment manufacturers are similar in terms of internationalization, but the situation is different for automakers. Indeed, as far as they are concerned, German exports to China and the United States are only used to complement the large commercial and industrial establishments in these countries, which they have favoured in their internationalisation strategies. As a result, their exposure to Chinese and, to a lesser extent, American risks is much greater than that of the two French nationals who are virtually absent from China and absent from the United States. At a time when they, like all manufacturers, need to invest massively in electrification, the decline in German manufacturers' results associated with the millions of vehicles missing compared to forecasts is therefore much more significant than those of French manufacturers. Since the three manufacturers have given analysts the habit of seeing very flattering results, justifying these very heavy expenses to them at a time when results are falling is highly problematic. Workforce reduction plans are there to reassure financial analysts. However, they risk undermining the social compromise of the German automobile industry, which has played a central role in its success for at least twenty years.

Translated with www.DeepL.com/Translator, corrections by Géry Deffontaines