ifo Institute: Structural Change in the Automotive Industry Is Weighing on the German Economy

“Structural change is now also leaving its mark on the labor market,” Wollmershaeuser adds. Since the beginning of 2019, the automotive industry workforce has shrunk by 1.3 percent in seasonally adjusted terms. This is a much stronger decline than in the rest of the manufacturing industry (minus 0.2 percent).

“In addition, in an ifo survey in December, around 14 percent of automotive companies reported that they had introduced short-time work – a significantly higher proportion than the average across the other industry sectors, which was 7 percent,” Wollmershaeuser says. For the next three months, as many as 19 percent of companies in the automotive industry expect to make use of short-time work, compared to 15 percent in the rest of industry.

“Interestingly, this came at the same time as demand for German cars increased in 2019,” Wollmershaeuser adds. “But customers were not served from domestic production, which shrank by 8.9 percent last year after having already fallen by 9.3 percent in 2018. Instead, automakers expanded production of German brands at locations outside Germany and then imported the cars into the country.”

Production by German car manufacturers in other European countries increased by an estimated 2.0 percent last year, following a rise of 7.5 percent in 2018. At the same time, German imports of passenger cars from the EU rose by 16 percent between January and September 2019 year on year.

“One possible reason for German automakers to relocate production like this is that they are increasingly converting their German sites to produce electric cars. During this transition phase, the number of new passenger cars produced in Germany is falling back, as the passenger cars with conventional powertrains previously produced at those German sites are built in other European countries,” Wollmershaeuser says.

Last year, 3.6 million passenger cars were newly registered in Germany, which is 171,500 vehicles or 5 percent more than in 2018. At 5.1 percent, new registrations of German brands even saw a slightly stronger rise than those of foreign brands, which increased by 4.8 percent. This reversed the slump in demand of 2018, when new registrations fell for the first time since 2013.

Vehicles with hybrid and electric drives were particularly in demand last year. However, sales of diesel vehicles also increased slightly compared to the previous year, following the slump in 2017 and 2018 in the wake of the diesel scandals and discussion of diesel driving bans.
The automotive industry accounts for 5 percent of Germany’s total gross value added and for 3 percent of the employees subject to social insurance contributions in Germany.

Publications

„Zur Schwäche  der Automobilindustrie und ihre Auswirkungen auf die deutsche Konjunktur“ in:  „ifo Konjunkturprognose Winter 2019: Deutsche Konjunktur stabilisiert sich“, S.47 - 53, ifo Schnelldienst 24/2019 (Download)

The Weakness of the German Car Industry and its Sectoral and Global Impacts“; EconPol Policy Brief 18, 2019 (Download)