Few sectors enjoy greater attention than the automotive industry. That is particularly true in Germany, home to global marques such as BMW, Mercedes, Volkswagen and Audi. The sector can look back on decades of success stretching as far back as the postwar period, when the type 1 Volkswagen, the VW Beetle, first rolled off the production lines in 1945. The car quickly became the most important of status symbols and an accelerator of economic growth. Today the motor sector is still the most significant branch of the economy in Germany by far – not only the largest segment of the manufacturing industry, but also one of its biggest employers. Nevertheless, that reputation is now at risk: a series of deeply concerning reports of profit warnings, job losses and factory closures, among others, have been doing the rounds just recently.
VW set the ball rolling at the start of the month. With the figures for the first half, which had already come with a lower forecast for the year as a whole, revealing serious weaknesses at Europe’s large motor group, the latest statements from its management suggest the problems have become even weightier. At a works meeting, CFO Arno Antlitz shocked those in attendance by disclosing a current shortfall in sales of about 500,000 vehicles, corresponding to the output of roughly two plants. “The market simply isn’t there any more,” Antlitz said. The finance director is looking to counteract this with a tougher austerity policy, which could also entail job losses and factory closures. VW seems to be finding savings just as difficult, though: according to media reports, the “fitness programme” launched in 2023 with the aim of delivering some EURbn 10 in cost savings is still up to EURbn 5 short of the target. As a result, a dispute between the works council and management about job losses, similar to the last one in 2016 following the diesel emissions scandal, seems almost inevitable.
While weak demand, high costs and investment are threatening to put VW into the red in 2024, results are also putting premium manufacturers BMW and Mercedes-Benz under pressure. The Munich carmakers saw their pre-tax profits fall by 10.7% in the second quarter, with the key profit margin in its motor business accordingly tumbling almost one percentage point to 8.4%. The downward trend will accelerate further in the second half of the year. A few days ago, the “white and blue” marque shocked observers by issuing a profit warning. Following problems with a brake system from its supplier Continental – the additional costs are put in the high three-digit million range – and a continuing slump in the Chinese market, BMW is now expecting a decline in sales this year and a return from its motor business of just 6% to 7%. The board had previously held out the prospect of 8% to 10%.
With a profit margin of 10.2%, Mercedes-Benz may have put its competitors in the shade in the spring quarter, but it is likewise on a downward trajectory: the brand with the star had achieved a return of 13.5% the year before. However, bosses have now dismissed the possibility of reaching such heights in 2024. At the halfway point the Stuttgart company narrowed its expectations for the year as a whole from 10% to 12% down to 10% to 11%. The group expects the operating result to be “slightly” below that of the previous year, which by Mercedes’ definition corresponds to a drop of 5% to 15%. Recently the carmaker has been having to deal not only with weaker Chinese business, but also the fact that fewer models from the luxury segment, which are generally much more profitable, are being sold at the moment. Their share of total sales fell by two percentage points to 14% in the second quarter. Group CEOr Ola Källenius expects to see an upturn here, however: “Sales and the model mix are expected to improve in the second half of the year, supported by further market launches of new models, particularly in the top-end segment.” The petrol version of the pepped-up V-class and a hybridised variant of the Mercedes-AMG GLE 53 will be launched on the market, for instance.