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2024

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Layoffs, closures, outflows: What happened to the German car industry?

author:

Zhang Dongmei


Not long ago, Bloomberg published a report "Germany's era of industrial superpower is coming to an end", which believes that the golden age of German industry is coming to an end. Although the article is somewhat exaggerated, the recent intensive official announcement of layoffs by Bosch Group, ZF, Continental and other parts giants does make the industry more worried.

 

In a recent interview with Automobilwoche, Frank Schope, a lecturer in automotive economics at the University of Applied Sciences in Hanover, Germany, predicted that as the industry shifts to electrification, a quarter of jobs in the German automotive supplier field could be lost by 2030.

 

01 Job loss in the parts field 1/4?

 

 

Statistics show that auto parts suppliers currently employ about 270,000 people in Germany. Schhopp believes that number could fall to 200,000 by 2030.

 

"The approximately 310,000 employees in 2018 and 2019 are a thing of the past. With the transition to electric vehicles, the number of employees in Germany is also likely to fall further." "Even if new jobs are created in areas such as battery development or battery production, these will not make up for the loss of other jobs," he said.

 

Recently, the news about the layoffs of the components giant has been continuous, and the focus is on Germany. Zf, for example, plans to cut 12,000 jobs in Germany by 2030, which is equivalent to almost a quarter of all ZF German employees, and some internal employees say the actual number of job cuts could reach 18,000. Bosch plans to cut at least 1,500 jobs at its two transmission plants in Germany and about 1,200 jobs in its software and electronics division by the end of 2026, of which 950 (about 80 percent) will be in Germany. Continental has launched a plan to cut 7,150 jobs by the end of 2025, with about 40 percent of the cuts taking place in Germany. In addition, French supplier Freia Group, which has operations in Germany, plans to cut 10,000 jobs in Europe by 2028.

 

In response, Automobilwoche noted that parts suppliers will continue to have a tougher time than automakers in the coming years, especially as the trend toward insourcing among automakers accelerates. Of course, the association has different views on the layoffs. Manuel Calvette, chief economist at the German automotive industry association (VDA), said the job cuts were not unexpected given the industry's transformation, and that he had expected them to be even bigger.

 

At the same time, Calvett pointed out that there is still a shortage of skilled workers and that this gap will not close in the coming years, and some jobs have moved, not lost. For example, he said, if an employee of a traditional component supplier moves to a battery manufacturer, their employment data is counted in the power industry, and "if an employee moves to a semiconductor manufacturer, the situation is similar." In this way, they are no longer automatically counted in the traditional automotive supplier field, but they are still producing auto parts."

 

Calvet noted that from 2019 to 2023, employment in the auto industry as a whole in Germany fell by 6 percent, "with a bit more of a drop at suppliers." However, the decline in vehicle production has been much larger." In 2023, 4.1 million cars were produced in Germany, compared to 4.7 million in 2019, a decline of about 12 percent. At its peak in 2016, 5.7 million cars were produced in Germany, and since then overall employment in the German auto industry has fallen by about 30,000 to about 780,000. For the future, he believes that small and medium-sized suppliers may face greater risks, given the significant decline in automobile production and the transition to electrification.

 

02 Manufacturing Outflow

 

 

Rising to the level of German industry as a whole, the above Bloomberg report highlights the grim situation facing German industry and the economy. Germany's thirty years after World War II are considered the country's golden age. Germany's industrial boom depends on several key factors: cheap and abundant energy from Russia, demand from the entire European Union and Chinese markets, high-quality labor from Eastern European countries, and supply chains from China. Now, it seems, things have changed.

 

Preliminary statistics released by the German Federal Statistics Office show that Germany's GDP shrank by 0.3% in 2023, to about $4.46 trillion. The German Federal Statistics Office said that the German economy in 2023 was affected by multiple crises and the overall development was weak. On February 19th the Bundesbank warned that the German economy would fall into a technical recession.

 

Marcel Fratzscher, president of the German Institute for Economic Research (DIW), recently revealed in an interview with the Rheinische Post that the German economy has suffered an unprecedented blow due to the Russian-Ukrainian conflict, with economic losses estimated at more than 200 billion euros. Behind that figure are soaring energy prices and supply chain disruptions. One consequence has been an exodus of manufacturing, relocating to other regions or even closing down, such as tire giants Michelin and Goodyear.

 

Faced with a severe downturn in the tire replacement market and high energy costs, Goodyear announced plans in mid-November to close two factories in Germany, namely Fulda and Felstenwald, Brandenburg, with a total of about 1,800 workers facing a job loss crisis. The former is scheduled to close in September 2025, while the latter will be phased out by the end of 2027. In the future, Goodyear will only have three factories in Germany - Hanau, Wittlich and Risa.

 

Following Goodyear, Michelin announced at the end of November that it would close its two tire factories in Germany by the end of 2025 and move its customer contact center from Karlsruhe, Germany, to Poland. The move will affect more than 1,500 workers. Michelin said the reason was not only the fierce competition in the market for cheap truck tires, but also the lack of competitiveness of its German business in Europe and export markets. The impact of the pandemic and the geopolitical crisis on energy, logistics and raw material prices, as well as persistent high inflation, have weakened Germany's competitiveness as an industrial base.

 

At the same time, Continental plans to merge or eliminate some research and development sites in the Rhine-Main region of Germany. In the past few years, Continental has closed several fuel system components and tire plants in Germany, and plans to phase out operations at its Giffhorn plant in Germany by the end of 2027, while the Limbach-Oberfrohna plant in Germany will stop its diesel engine (injector) hydraulic parts business in 2028.

 

The BMW Group has also adjusted its production schedule. In November, the last internal combustion engine produced at BMW's plant in Munich, Germany, rolled off the assembly line, after which the plant will be converted into an electric vehicle production base, while internal combustion engine production will be transferred to factories in Austria and the United Kingdom.

 

And it's not just the car industry. Basf, the German chemical giant, is cutting jobs in Germany while increasing investment in the Chinese market. German home appliance giant Mino plans to move about 700 jobs from Germany to Poland; French steel pipe maker Vallourec shut down production in Germany last September. Not long ago, the German "Bild" quoted the Federation of German industry (BDI) president Siegfried Russwam as saying that in Germany, a third of manufacturers are considering moving production to other countries during economic difficulties, which is twice the number in 2022.

 

In addition, the Red Sea crisis had a great impact on the import and export and manufacturing supply chain, including Tesla's Berlin factory, some car companies temporarily suspended production. The impact of the Red Sea crisis, such as rising costs, raw material supply cuts and longer delivery times, is gradually showing up. Industry analysts have also generally lowered their profit forecasts. For the German car industry, this is no doubt worse.

 

China Automotive News, February 23, 2024