Record slump in German car production could put 100,000 jobs at risk

Jill Petzinger
Jill Petzinger, Germany Correspondent, Yahoo Finance UK
Mercedes-Benz plant in Sindelfingen, Germany. (Andreas Gebert/Anadolu Agency via Getty Images)

The coronavirus pandemic, which shattered supply chains and forced automotive manufacturers to close their plants for weeks, caused passenger car production in Germany to tank in the first five months of 2020.

Now sluggish demand and slow recovery in global markets is likely to puts tens of thousands of job in the sector at risk in Germany.

According to the German Automotive Industry Association, only 1.18 million cars were produced between January and May this year, a drop of 44%, or nearly a million vehicles from the same period in 2019.

The last time German car production numbers hit such a low was in 1976. Ferdinand Dudenhöffer, director of the Center for Automotive Research in Germany, says his “rather optimistic forecast” shows a decline in car production in Germany by 26% to 3.4 million for 2020.

Dudenhöffer, who also heads the Institute for Customer Insight at the University of St Gallen does expect production to pick up in the second half of the year, “largely driven by better exports to China and the United States.”

“However, the export markets of Europe, Africa and South America, where more than half of German car production has been exported in recent years, will remain extremely difficult.”

The automotive expert predicts that the production levels will remain stunted, as key markets won’t recover for several years — and this could mean the loss of 100,000 jobs in the automotive and supplier industries over the next three-to-four years.

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“Since the car market in Europe will also be very difficult in the next few years, it must be assumed that most of these jobs won’t be filled in the future,” Dudenhöffer told Yahoo Finance UK. “An important reason is the relocation of production facilities to Asia and Eastern Europe due to better cost conditions, and in Asia due to the significantly growing market.”

He is critical of the German government’s recent stimulus package for automotive industry, which employs around 800,000 people.

Earlier this month the coalition government in Berlin decided against a cash-for-clunkers programme to stimulate sales, agreeing instead to increase buyer subsidies for clean energy cars, but not for internal-combustion engine vehicles. 

“The market for electric vehicles, which is heavily subsidised, is a niche market with at most 10% of the overall market,” Dudenhöffer notes.

“Liquidity support and prolonged short-time work schemes are measures that delay death but do not bring the solution,” he said. “The solution is consumers who buy products that can be produced today.”

“With the so-called stimulus package, we are only falling deeper into the crisis, because debt will increase without stimulus.”