German Automotive Industry Analysis

4) Industry Analysis: Automotive

1. Description of the German Automotive Industry

1. Place in the global market

German automotive industry is recognized all over the world for its excellence and innovation in engineering and overly outstanding automotive industry. German cars incorporate values such as innovation, reliability, safety and design. Germany is Europe’s leader in car sales and production (exhibit 1), with high-skilled workforce, exceptional infrastructure and R&D investments. Moreover, automotive industry is the largest industry in Germany, with a turnover of more than 404 mln. € as for 2015 (around 20% of global German industry revenue) . Around 35 percent of this revenue were generated domestically, 65% of revenues came from exporting. The largest share of exports in 2015 was destined to Europe, although Asia and North/South America were also regular buyers of a large quantity of cars from Germany. The German automobile supply industry generated roughly 76 billion € worth. Automotive industry is also a huge employer in Germany, with around 792500 of workforce in 2015 (Industry Overview: The Automotive Industry in Germany, 2016). On the global scale, German automotive industry is positioned 3rd production wise, with China being top 1 car manufacturer in the world, followed by Japan However, value wise Germany is world’s leader in car exports with $148,350 mln. which translates as 22,7% of world’s car exports in 2015 (exhibit 2).

1. Main players and numbers

Germany’s automotive industry is represented by car brands that are known

All over the world such as Audi, BMW, Mercedes-Benz, Porsche, Volkswagen. Main three manufacturing companies and key players of German automotive industry are Volkswagen AG, Daimler AG and BMW AG. Volkswagen AG comprises 12 vehicle manufacturers with 100% ownership, Daimler AG has 10 vehicle manufacturers on their side and BMW AG having 3 vehicle manufactures (exhibit 3).

        The three giants of German automotive industry are in the top ten of world’s leading car manufacturers, having revenues of $240 bln. (Volkswagen AG), $169 bln. (Daimler AG) and $104 bln. (BMW AG) all as for 2015 (exhibit 4). Moreover, according to an April 2017 report from Ernst & Young, BMW AG, with earnings before interest and taxes profit margin of 10 per cent, and Daimler AG, with 8.4 per cent, were the world's most profitable car companies in 2016. On the local market, German’s “Big Three” are dominating the market with approximately 36.7 % of total sales in 2016 for Volkswagen AG, 10.5% for Daimler AG (Mercedes-Benz) and 9.1% for BMW AG.

1. How macro-economic factors and policies are influencing the industry

German economy, being highly integrated in the world’s economy, severely suffered from financial crisis of 2008. That being said, automobile industry was impacted as well. Opel has endured the worst hit of the German companies (General Motors, which owned Opel at the time, was based in the U.S) .The company's sales in Europe have nearly disappeared. Daimler AG sales plummeted by 30% in November 2008 compared to 2007, company had to recourse to massive cuts and cost-saving programs. BMW AG had a decrease of 21% in its sales in November 2008, main brand BMW endured losses of 36%. BMW had to stop its production for 5 weeks, Daimler for 4 weeks and Opel for 3 weeks. As a result after reaching a peak in car sales in Germany in 2009, in 2010 sales went down by 24.3 % and German car market is still recovering ever since (exhibit 5).

In 2015 a huge scandal hit leading German car manufacturer Volkswagen AG, it was accused by EPA (Environmental Protection Agency) which claimed that many Volkswagen cars had a “defeat device” or software in their diesel engines that could change the performance of those engines in order to fulfill the norms of emission test. After calculation it was unveiled that the engines emitted nitrogen oxide pollutants up to 40 times above what is allowed by the US emission policy. Volkswagen launched an internal inquiry and had to recall millions of cars worldwide, company endured losses of 2.5 bln. € in October 2015. Volkswagen shares dropped by a third in December 2015 (Hotten, R. (2015, December 10). Volkswagen: The scandal explained).

Another vigorous scandal hit Germany’s main industry in 2017, this time it was associated with the news magazine Der Spiegel which reported that German carmakers VW, BMW, Daimler, Audi and Porsche had been engaging in cartel-like behaviour since the 90s, in particular working with each other on the technical details of diesel exhaust treatment systems, in order to fit in emissions regulations policies (Chazan, G. (2017, July 25). What is the latest scandal to hit the German car industry all about?). Accordnig to analysts at Exane  BNP Paribas companies can face a fine up to 8 bln. € for BMW AG, 14 bln. € for Daimler AG and 19 bln. € for Volkswagen AG. However, VW and Daimler have refused to give any comments, and BMW denied tha fact it cooperated with its rivals. BMW’s administration also added that there is nothing wrong with working on some of the components with other car makers if “they do not relevant to competition”.

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