The German automotive industry is facing substantial challenges, including layoffs, reduced profits, and strikes. Volkswagen is grappling with potential plant closures and declining sales, particularly in China, despite recent financial success. BMW remains relatively stable, focusing on technology and electric vehicles, although it has experienced significant drops in deliveries. Mercedes-Benz is implementing cost-cutting measures amid falling revenues and disappointing sales of electrified vehicles. The industry must adapt strategically to navigate this crisis effectively.
The German Automotive Industry: Navigating Tough Times
The German automotive sector is currently facing significant challenges, characterized by job reductions, declining profits, and strikes. However, how do the key players like Volkswagen, BMW, and Mercedes stack up against each other during this tough period? Let’s take a closer look.
Wage negotiations at Volkswagen are heating up, entering their second day as both parties strive to reach an agreement on wage reductions, potential plant closures, and layoffs before the holiday season. The backdrop of these discussions is a slew of unsettling news impacting the industry, particularly for giants like VW, BMW, and Mercedes. As Constantin M. Gall, Managing Partner and Head of Mobility at EY for Europe West, puts it, “The last quarter has been catastrophic for German car manufacturers.” So, how are VW, BMW, and Mercedes performing individually?
In an effort to alleviate the situation at Volkswagen, the federal government is looking to extend short-time work benefits.
Volkswagen: A Profitable Giant in Crisis
Despite its status as the largest car manufacturer in Germany, Volkswagen is currently engulfed in a crisis atmosphere. Discussions are ongoing regarding the potential closure of plants and layoffs. Recently, VW announced the end of its employment guarantee, which had been in place since 1994 and was set to last until 2029, following a management meeting.
Financially, Volkswagen has fared well in recent years. “Volkswagen’s CEO Blume acknowledged the automotive industry’s crisis in September, although the last three years, and likely 2024, have been incredibly profitable for the company,” says Frank Schwope, an automotive economics lecturer at the University of Applied Sciences for SMEs in Hanover. In 2023, VW achieved record revenues of approximately 332.3 billion euros, marking a 15 percent increase. Furthermore, from January to September 2024, revenues continued to rise, reaching 237.3 billion euros.
Shareholders have also benefited from high dividends, with Volkswagen distributing 4.5 billion euros in dividends this year alone, alongside a special dividend of 9.6 billion euros in 2023. “This indicates that the company is not reliant on government support,” Schwope adds. Notably, Volkswagen boasts the highest supervisory board expenses among DAX companies, with board members receiving around 7.5 million euros in 2023, a 42 percent increase from the previous year.
Despite these financial successes, why is there a sense of crisis in Wolfsburg? According to Schwope, “The profits of the past three years have been artificially inflated due to COVID-related factors. Management’s expectation to maintain these high profits is unrealistic.” This sentiment is echoed in the interim results for 2024, where car sales plummeted by over four percent in the first nine months compared to the previous year, with a significant decline of more than ten percent in China.
This decline in sales poses a serious issue for VW, particularly as the Chinese market is its second-largest after Europe. The company is struggling to compete against cheaper and more innovative domestic electric vehicle manufacturers. Currently, Volkswagen lacks a competitive electric vehicle that can rival these Chinese brands.
Additionally, VW’s subsidiary Audi is facing significant challenges, with deliveries falling by 10.9 percent in the first nine months of 2024 across its brands, including Audi, Bentley, Lamborghini, and Ducati. The Audi brand has lost ground in all major markets—Europe, the USA, and China—turning into a liability for the group, leading to discussions of plant closures, including halting electric vehicle production at its Brussels facility, affecting around 3,000 employees.
BMW: Resilience Amidst Challenges
According to Schwope, “Among the three leading German automakers, BMW is in the most robust position thanks to its flexibility and focus on technology.” BMW’s commitment to CO2 reduction goals for 2025, as emphasized by CEO Oliver Zipse, supports this position. Zipse asserts that e-mobility will continue to serve as a key growth driver in the coming years.
The company has reported substantial progress, with electrified vehicle deliveries rising over six percent in the first nine months of the year. However, the cautious consumer behavior in China has posed a challenge, resulting in over a 13 percent drop in deliveries in that market. Overall revenues fell by about six percent, totaling approximately 106 billion euros.
The situation worsened in the third quarter, with a staggering 30 percent decline in deliveries from China compared to the previous year and a nearly 16 percent drop in revenue to 32.4 billion euros. In addition to the slowdown in China, BMW faced complications from a brake system supplied by Continental, leading to a recall of 1.5 million vehicles globally.
Nonetheless, BMW is steering clear of drastic measures like those being considered at VW. There are no discussions of plant closures or changes to employment guarantees. However, the company has made adjustments impacting employee profit-sharing and will temporarily reduce Christmas bonuses to 85 percent of the entitled amount for 2025 and 2026. Additionally, starting January 1, 2027, the anniversary bonus for employees will be eliminated.
Mercedes-Benz: Implementing Cost-Cutting Strategies
Mercedes-Benz is also grappling with declining revenues and sluggish sales figures. The premium automaker reported a five percent decrease in revenue over the first nine months of this year compared to the previous year. The third quarter saw particularly steep challenges, with net profit plummeting nearly 54 percent to 1.72 billion euros compared to the same quarter last year, while revenue dropped by 6.7 percent to 34.5 billion euros.
One contributing factor to this downturn is disappointing sales of electrified vehicles, which fell by around eight percent in the first nine months of 2024. As these leading automotive manufacturers navigate this tumultuous landscape, the road ahead will undoubtedly require strategic pivots and resilient leadership to emerge successfully from the current crisis.