Struggling German Automakers Face Intense Competition from Asian Manufacturers
Automobile manufacturers from Germany struggle to keep pace
In a worrying trend, the German automotive industry is facing a steep decline while Asian competitors make significant strides. German car giants such as Volkswagen, BMW, and Mercedes-Benz have witnessed a decrease in sales and profits, contrasting with the impressive gains made by Asian manufacturers, especially those from China. The experts warn of an existential crisis brewing.
The analysis by EY demonstrates that German automakers saw a fall of 2.3% in combined sales during the first quarter of the year. While Volkswagen was the only company that managed a slight increase, both BMW and Mercedes experienced sizeable declines. Profits also took a hit with a drop of approximately one-third for the trio. U.S. manufacturers faced similar woes with a 2.9% decrease in sales and almost a third in profits.
China, on the other hand, was a beacon of hope. The country's manufacturers witnessed a 14.7% increase in sales and a whopping 66% surge in profits. Companies like BYD and Geely took the lead. Japanese and South Korean manufacturers also performed better than their European and American counterparts, making Asia the dominant force in the global automotive industry, with five of the six most profitable car manufacturers being Asian.
As the crisis shows no signs of abating, EY market observer Constantin Gall warns that established manufacturers' entire business models could be at risk. If profits continue to dissipate, some manufacturers may face dire questions. The intensifying competition in the industry threatens the survival of several automakers.
Established automakers are grappling with multiple issues such as slow economic growth, high costs, and the slow rollout of electric mobility. The Chinese market's increasing dominance by local players has worsened the situation. The looming threat of 25% tariffs on car imports by U.S. President Donald Trump has further pushed profit margins into the red, exacerbating the gap with Chinese manufacturers.
Major manufacturers and suppliers have already announced cost-cutting programs with layoffs. Volkwagen alone intends to eliminate 25% of jobs at its core brand in Germany by 2030. However, cost-cutting alone may not be enough. Western automakers must undergo a comprehensive transformation that includes complete digitization, expedited vehicle development, and streamlined decision-making to remain competitive.
Emulating the new Asian competitors could provide valuable lessons. Chinese providers have shown that investing large sums of money is not the only key to success. Speed, flexibility, and a more strategic approach to investments are equally important factors in achieving growth. While VW made minor progress, with sales for the first quarter being on par with Toyota, the Japanese manufacturer dominated in terms of sales and operating profit.
Sources: ntv.de, rog/dpa
- Automakers
- German automakers
- Volkswagen
- BMW
- Mercedes-Benz Group AG
- Chinese automakers
The factors driving the Asian automotive industry's surge include:
- Improved sales and profit performance: Asian manufacturers, particularly from China, have managed to grow sales by nearly 15% and boost profits by up to 66%. Companies like BYD and Geely have been leading the charge, with five of the six most profitable carmakers globally coming from Asia.
- Rapid electrification and technology advancements: China is at the forefront of the global EV transition, with EVs accounting for more than half of all new passenger vehicle sales in 2024. This has given Asian companies a significant advantage in the EV market.
- Increased investment and localization: German companies have been increasing their investments in China to improve localization and competitiveness. For example, Volkswagen and BMW have announced partnerships and investments in China for developing local models and high-tech projects.
- Favorable regulatory environment: The EU's regulatory environment provides a competitive edge for European carmakers, but laxening these regulations could further strengthen China's position.
The reasons for Asian manufacturers' success include:
- Strong demand for EVs in Asia, especially China, is driving manufacturing growth and technological advancements.
- Economic policies and trade dynamics, such as Germany's cautious recalibration of its relations with China, influence investment flows and strategic partnerships.
- Asian manufacturers have proven to be more adaptable and innovative when facing changing market demands and regulatory environments.
The German automotive industry is currently losing ground to Asian manufacturers, necessitating a review of their community policy to remain competitive. To tackle this, vocational training might be an essential strategy for improving efficiency and innovation, as demonstrated by Asian competitors' success in mastering speed, flexibility, and strategic investment. Finances play a significant role in this transformation, with European manufacturers needing to allocate resources wisely for digitization, expedited vehicle development, and streamlined decision-making.
