BAD days are coming for Germany's automotive industry, which employs more than 800 thousand people. Rising energy costs, delays in parts deliveries, disrupted supply chains, microchip shortages, declining car purchases, the problems are only piling up and growing.

Germany is the fourth country in the world by total car production and one of the most competitive in that industry. Cars are precisely the main export product, and looking at total exports of all types of vehicles, 15 to 20 percent of total exports fall on those products.

It is estimated that due to various problems, up to 700 thousand fewer vehicles will be produced this year than was planned at the beginning of the year, which means that the automotive industry will not recover this year either from the shock of the pandemic in 2020 and 2021.

In 2020, 3.5 million cars were produced, and in 2021, 3.1 million. That is far less than the former figures, which approached total production of 6 million cars annually. A recovery was expected this year, but by all accounts, it will not happen.

Problems started before the pandemic

Although the target was total production of 6 million cars, which would have been the highest in history, already in 2019 production fell to just 4.7 million cars, the lowest since 1997. Exports fell to only 3.5 million, 13 percent less than the year before.

That was a reason for alarm and the first signal that the automotive industry in Germany was losing global competitiveness. The decline is more than obvious. While in 1998 more than 11 percent of new cars in the world came from Germany, the share fell to less than 6 percent.

The reason for the drop in production in 2019 was weak demand abroad. Thus exports fell 13 percent, while the number of registrations of new cars in Germany rose 5 percent. Another reason was new EU regulations related to CO2 emissions from cars.

Along with the trade war between the US and China and Brexit, it was precisely the weakening of economic activity in Germany that was the reason for fears of recession that year. Orders from abroad were weakening, and in the second quarter there was a drop in GDP.

Pandemic – the lowest car production in Germany's history

In 2020, production fell even further, to 3.5 million cars. That is the lowest production in history, i.e. since the unification of the two Germanys in 1990. There were fears that up to 400 thousand workers would lose their jobs, which would be a major social burden for the state budget.

The reasons are the outbreak of the covid-19 pandemic, the consequent introduction of measures to combat the spread of the disease, and thus the cessation of travel and car use. Travel between countries was banned for a long time, between different regions allowed in rare situations, and a great many workers began working from home instead of from the office, so the car became less and less necessary.

Factory plants were completely shut down for weeks, and for most of the year they operated at a smaller part of full capacity. Production itself was made more difficult and slowed by measures against the spread of the virus in the workplace. In addition to wearing masks and measuring temperature, companies often checked workers' blood oxygen levels.

The automotive industry was one of the hardest hit during the pandemic, after the aviation and hotel-catering industries, according to research from January 2022. Those industries depend on human mobility, which was forcibly limited. Everyday shopping continued, but people cut larger expenses, such as buying a car.

Chip shortage

With the start of 2021, the opening of plants and the renewal of demand brought new problems. A chip shortage appeared. While in the previous year car sales and production were falling, at the same time the purchase and production of laptops, gaming consoles and televisions were rising, as people sought a source of home entertainment because they spent almost all their time at home.

That led manufacturers to reorient themselves toward satisfying that market segment, reducing chip production for the automotive industry. And today's cars use a lot of electronics, so they also require a lot of chips.

Their production is a complex process and it takes a lot of time to repurpose production lines from producing one type of chip to another. That happened in the second quarter of 2020, at the very beginning of the pandemic, when chip orders from car manufacturers fell, and manufacturers turned to producing chips for laptops, televisions and gaming consoles.

Car production recovered after the reopening of factories, among other places in Germany, so demand also recovered for chips installed in the electronic equipment of cars. But chip production for cars had to be switched back again, which requires time.

Simply put, radical changes in demand and production caused instability in supply chains, thereby creating “bottlenecks” and a chip shortage, which is why factories had to reduce or even stop production.

“This is another clear sign of recession”

The situation in Germany's automotive industry, but also more broadly, was commented on by Damir Vanđelić, former head of the Reconstruction Fund and president of the ZRIN association.

“There are several reasons for the expected drop in car production. The very announcement of a recession drives especially disciplined Germans to reconsider their comfort and get rid of what they can most easily do without. That is, for example, the decision to buy a new car,” he explained.

Car sales in Germany fell sharply in June, official data showed on Wednesday. 224,558 new cars were registered, which is 18.1 percent less than in the same month last year, the federal transport authority KBA said in a statement. In the first half of the year, just over 1.2 million new cars were registered, 11 percent less than in the same period last year, which was the worst in history.

“Croatia will also be hit by a recessionary wave”

“There is also the challenge of the supply chain of elements essential in production. In this, the so-called Tesla effect and the transition toward electric vehicles are interesting, which are more popular due to rising prices and fees for fossil fuels,” says Vanđelić.

Sales of electric and hybrid vehicles in the first half of the year did indeed fall less, by 3.2 year-on-year, much less than sales of cars with internal combustion engines. Supply chains have still not recovered and that significantly complicates production. Additionally, costs rose due to rising energy prices, especially gas.

“For the EU, this is another clear sign of recession. But that recession will also have a positive effect and mitigate inflation. Stagnation and recession were announced before the pandemic and the war in Ukraine, and now they have only strengthened and accelerated all the components of the recession. For Croatia, this means that, along with all our local inefficiency and poor economic structure, we will also be hit by the recessionary wave coming from the EU,” concludes Vanđelić.

Source: index.hr