Germany’s auto suppliers: Is the big exodus imminent?

Things are not looking good for the automotive industry. If politicians do not take countermeasures soon, the Association of the Automotive Industry (VDA) fears that supplier production will increasingly be relocated abroad. “Emigration is an option for companies because their products are internationally competitive,” said VDA President Hildegard Müller to the “Augsburger Allgemeine”. “The location is currently not suitable for many companies.”

How serious is the situation? The crisis caused by the change to electromobility poses major challenges for all companies in the industry. Along with the car manufacturers, the suppliers have also fallen into the downward spiral. Whether Continental, ZF Friedrichshafen, Bosch, Schaeffler or Brose: tens of thousands of jobs are at stake. And not a week goes by without new bad news. Is the next level of escalation the loss of production in Germany?

Ferdinand Dudenhöffer sees the situation seriously. Germany has dramatically lost its attractiveness for the industry, says the head of the private Bochum institute Center Automotive Research (CAR) in an interview with ntv.de. However, it is not the first wave of migration in the German auto industry. “We have been observing an exodus from Germany to cheaper locations for 20 years, primarily due to the eastward expansion of the EU.”

Relocations can “rarely be avoided”

“We have German car manufacturers in Poland, Hungary and the Czech Republic. “Ford has been producing in Bursa, Turkey, for ten years,” said the industry insider. Even then, suppliers had followed the manufacturers. “Bosch also has a large factory in Bursa.” Car expert Frank Schwope also points out that these relocations abroad have been going on for decades. They can “rarely be avoided,” as the lecturer at the Hannover University of Applied Sciences for the Middle Class Automotive Industry tells ntv.de. He also sees homemade reasons for this: “Years of structural adjustments were not accepted, also because Corona led to distortions and sometimes exorbitant profits.”

However, Dudenhöffer fears that the new wave of emigration that he believes is impending will have a different quality. He is convinced that it will hit the German economy harder. He points out a key difference to conventional relocations: “In the first wave, the development departments – the brains of the company – stayed in Germany,” says Dudenhöffer. Today things are different. Development departments are now being set up abroad everywhere.

According to Dudenhöffer, the development will not stop at other sectors. The mechanical engineers who build the systems and machines for the automotive industry are also on the decline. The reasons are the same for all companies: “Germany is sinking into the swamp: we have migration problems, tax problems, the most expensive energy in the world.” We have no strategy and at best only make small, short-term programs.”

Shift to where? To Europe, the USA or China?

For the car expert Schwope, another migration to Hungary, Romania, Bulgaria or Turkey would be “not unrealistic”. Dudenhöffer, on the other hand, considers locations in the USA or China to be more attractive locations in Eastern Europe. China scores particularly well when it comes to digitalization. “The opportunities to develop something and produce new products there are light years better than here.” Unlike the USA, China is also growing because it maintains business relationships with Africa and other Asian countries.

Schwope does not share the assessment that China could be a possible target. For him, “the great China wave” is “more likely to be over” due to the general conditions. According to the unanimous opinion of experts, the USA is still under observation. “If a company is planning a new plant in North America, Trump’s customs policy will of course make the USA more interesting,” Schwope admits. BMW and Audi had built plants in Mexico in order to produce cheaply for the US market. This business model will be dead if Trump follows through on his tariff announcements for Mexico. A realignment may be necessary.

The USA had already attracted many German companies to the USA with the Inflation Reduction Act and the billions in funding for climate protection technologies. Audi, BMW, Schaeffler, Siemens Energy, Aurubis: The list of German companies that announced major investments in the USA or expanded existing locations last year is long. According to a survey by the German Chamber of Commerce and Industry, one in ten companies planned to relocate production to the USA last year.

“This is just the beginning of the exodus,” Dudenhöffer is convinced. The second wave was rolling in, but no one noticed it yet. The consequences could be dramatic: Germany is in danger of “bleeding dry,” he warns. Reversing the development and rebuilding the location will be “infinitely difficult”. The chairman of the Upper Franconian automobile network ofrCar eV, Timo Piwonski, recently made similar comments. “Unfortunately, one has to say that their bags are packed and many companies are intensively concerned with migration and relocation of production processes.” He is also convinced that if companies leave Germany, they cannot be expected to return quickly.

Schwope sees the situation as less dramatic: decisions like this are expected, he says. Plant closures are expensive. “The closure of the Audi factory in Brussels, for example, will cost over a billion euros, so you have to calculate carefully whether it’s worth it.”

Germany lags far behind in terms of competitiveness

VDA boss Müller is still calling for quick reforms. The new federal government must strengthen the competitiveness of the industry. Their argument: If there is no political course correction, “the investments necessary for the transformation of the automotive industry will increasingly no longer be purchased in Germany and Europe, but elsewhere – with corresponding negative consequences for prosperity and employment in Germany and Europe.”

German industrial production is already declining. And in the competitiveness ranking, Germany has slipped from 6th to 24th place over the last ten years. The VDA’s specific demands for a turnaround are: cheaper energy, a competitive tax and contribution system, reduction in bureaucracy and a good supply of raw materials.

A crisis summit of the automotive industry in September produced no results. Discussions with industry representatives will continue. The Bavarian state government is inviting people to a meeting on December 2nd in the car country of Bavaria, where the two global brands Audi and BMW are based and where the industry employs a total of 140,000 people. After the September summit, the federal government announced that it would implement what it believed to be appropriate measures.

The article first appeared on ntv.de. Like Capital, the news portal belongs to RTL Deutschland.

#Topics