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Why German car companies continue to perform despite crisis tendencies in the industry

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At the beginning of 2020, a summit meeting took place in Berlin between representatives of the automobile industry, the union IG Metall, and the German federal government. As a result of the meeting, the federal government announced that it would “supervise the structural changes in the automobile industry with respect to employment policies” and “remove the hurdles for short-time work” (Frankfurter Allgemeine Zeitung, 10.1.2020). At first sight, this measure seemed excessive. German auto manufacturers reported record-high profits in 2019, and job cuts in the industry (with the exception of Opel) have been minor up to now. This begs the question of where the German automobile industry draws its strength from in the context of the onset of a crisis in the automotive industry, and for how long this exceptional situation can be upheld.

Winfried Wolf is editor-in-chief of LunaPark21—Zeitschrift zur Kritik der globalen Ökonomie. Together with Bernhard Knierim, he is the co-author of the recently-released Abgefahren. Warum wir eine neue Bahnpolitik brauchen. This article originally appeared in LuXemburg, and wastranslated by Hunter Bolin and Ryan Eyers for Gegensatz Translation Collective.

There are some indications that we are currently experiencing a new global crisis in the automobile industry. In 2019 and 2018 the number of cars produced in Germany declined: 5.6 million cars were produced in 2017, but by 2019 that number had fallen to 4.7 million. The number of cars produced also declined worldwide. 80.1 million cars were produced in 2019 compared with 84.7 million in 2017. Some companies and regions have already been severely affected by these slumps. In December 2019, Opel/Vauxhall—a subsidiary of the French carmaker PSA—reported that its sales across Europe had fallen by 35 percent from the previous year. In China, production decreased by 7.5 percent across the same time period (OICA 2019).

The Automotive Industry and Global Capital

The automotive industry has been the global capitalist system’s most important industrial sector for a century. It is not the largest sector, since far more people employed in the textile industry, for example. In Germany, mechanical engineering employs considerably more people than the automotive sector, and also has a higher export ratio than car production.[1] Ultimately, the automotive industry is concentrated in only a few very powerful countries, with the quartet of the USA, China, Germany, and Japan at the top. This is followed by the trio of car countries which are not as strong: South Korea, France, and Italy. In all other countries the automotive industry does not—or no longer—play the leading role.

Nevertheless, in terms of material production—since the supremacy of the financial sector remains undisputed—the automotive industry is the decisive sector in the world economy, in the sense of being the “most powerful” industry. It has also been largely responsible for the fluctuations in global GDP and world trade in past economic cycles. This first of these cycles appeared in the mid-1970s. Since then, there have been five global cycles with five concomitant crises in the sector. And in all five cases these crises have been associated with global recessions and global crises. They took place in 1974/75, 1980 to 1982, 1991/92, 2001/02 and 2008/09, with the most recent the deepest and most severe crisis that the automotive industry had experienced since the late 1920s, and which global capitalism as a whole had experienced since the Great Depression of 1929–1932.

Shifts in the Geography of Car Production

The changes in global capitalism are closely related to changes in the international automotive industry. The USA dominated the global automotive industry from the beginning of the 20th century to the end of the 1960s: more than half a century. This period was characterized by the US maintaining absolute hegemony on the world market, which ended with its defeat in the Vietnam War and the decoupling of the US dollar from the gold standard in 1973, which in effect marked the end of the hegemony of the US car industry. This was followed by a period lasting until 1992, in which the rise of the Japanese car industry and Japanese capital seemed to be unstoppable.

The collapse of the Soviet economic system and the structural crisis in which Japanese capitalism found itself in the 1990s opened up opportunities for the rise of the EU, which at the same time provided the basis for the expansion of Western European and, in particular, German car manufacturers. Daimler attempted to do this by taking over Chrysler (1998) and Mitsubishi (2000). The project (which, incidentally, was controlled by the later head of Deutsche Bahn AG, Rüdiger Grube) failed miserably. In 1999 Renault launched a similar endeavour by entering into a “strategic alliance” with Nissan (and took over Dacia in Romania and later Lada in Russia). However, this major Renault-Nissan project may have also come to an end with the arrest of Renault’s boss Carlos Ghosn in November 2018.[2] In 2002, major VW shareholder Ferdinand Piech announced VW’s goal of becoming a world leader in the automotive industry. The clean diesel campaign, which was led by VW and supported by the two other German car manufacturers, Daimler and BMW, was supposed to take North American markets by storm. The 2009 corporate alliance between Suzuki and VW prompted by VW’s purchase of an almost 20% stake in the Japanese manufacturer was intended to serve this goal. This offensive also failed miserably. In the USA, VW was forced to release financial disclosure statements and to pay more than €30 billion in fines for the criminal falsification of emissions reports. The VW-Suzuki alliance fell apart in 2015. The failure of the European car companies’ offensives took place simultaneously alongside the relativization of the EU’s position within global capitalism.

The automotive industry has also played a central role in China’s meteoric rise in the 21st century. China has become the world’s biggest market for cars and the largest workshop for the production of cars (not an extended workbench!). At the end of the 20th century, more than four-fifths of the world’s cars were produced in North America, Japan, South Korea, and Western Europe. At that time, only 3.3 percent of the world’s cars were produced by China. By 2020, this figure had increased nearly tenfold, or to around 30 percent. In the same period, the percentage of cars manufactured in the EU fell from 33 to 18 percent, while in Germany that figure fell from 8.5 to 5.5 percent. The percentage of cars produced in the USA more than halved from 23 to 11 percent.

Continuity in the Structure of Capital in the Automotive Industry

But this shift in the geographical structure of the global automotive industry has no analogue in the structure of the capital invested in the automotive industry. Western automobile companies—and the German automobile companies VW, BMW, and Daimler in particular—have a considerable influence on the automobile industry in China. China has produced competitive companies in almost all sectors of global capitalism (Lenovo in PC/ laptops, Alibaba in the Internet sector, Huawei in smartphones and telecommunications, and CRRC in high-speed trains).[3] But there is not a single major Chinese carmaker that can compete on the global car market. The world’s twelve largest car companies will still be exclusively “Western” in 2020 (although the Japanese and South Korean companies can be considered Western companies at this point). This dirty dozen still controls around three-quarters of global car production, although these companies now have large factories in China. These are the four Japanese companies Toyota, Nissan, Honda, and Suzuki; the three German companies VW, Daimler, and BMW; the two US manufacturers GM and Ford; the two French companies Renault (with Dacia and Lada) and PSA (with Peugeot, Citroen, Opel and Fiat-Chrysler); and the South Korean manufacturer Hyundai.[4]

The Strengths of German Car Companies

The most recent crisis in the automobile sector, in 2019, impacted all regions recording high sales of cars. This is new, since China was not impacted by the preceding crisis experienced by the sector from 2007 to 2009, which considerably lessened its impact. Up until the end of 2019, the German automotive industry still seemed to be a bastion of calm. There are three reasons for this. Firstly, in 2018 and 2019, despite declining figures in production, figures in domestic sales, i.e. registrations, increased again. This cushioned the slump in exports. In 2018 and 2019, the number of cars registered in Germany increased dramatically by 1.3 million. This continued sales boom was made possible by positive domestic economic trends and by Germany’s position in the EU, which was strengthened by the Euro. The state’s indirect financing of car sales through company car subsidies played an important role in this as well (two-thirds of all newly registered cars in Germany manufactured by German car companies are company cars!).

Secondly, the German automobile companies continued to focus on SUVs and expensive mid-size cars. This allowed sales to remain broadly stable despite a decrease in production. This fits neatly with the German government and the European Union promotion of electric cars: by designating all electric cars as “zero emissions vehicles”, car companies have managed to concoct a clever mix of electric cars and SUVs that has allowed them to continue their reliance on expensive and large-volume cars and largely compensate for standard SUVs’ CO2 limit violations by making them electric. Thirdly, despite the crisis in the auto industry, German companies were able to increase their sales in China in 2018 and even in 2019. The large and expensive German cars (largely produced in China itself) are aimed primarily at the upper echelon of the Chinese middle class, who have not yet been impacted by the crisis. 

However, it is fairly unreasonable to conclude from this that German manufacturers will not be affected by their industry’s ongoing crisis. It is clear that the crisis in the Chinese automotive sector is certainly deepening. Since the summer of 2019, it is precisely the electric vehicle sector which has so dramatically nosedived. One reason for this is the incipient capping of subsidies for “electric mobility” options. The drop in sales in this sector has been so great that Miao Wie, China’s Minister of Industry, addressed the public in mid-January 2020 with the dramatic plea “Stay calm, there will be no additional cuts!” and declared that battery-powered cars would continue to be funded, contrary to what had previously been announced (Süddeutsche Zeitung, 14.1.2020). In Europe, North America, and Japan, a massive process of rationalization and re-structuring is underway, which is likely to destroy several hundred thousand jobs. Nissan announced that it will significantly increase the use of robots in car production. For their part, in 2019 VW and Ford announced the formation of an alliance in the fields of electromobility and autonomous driving. PSA’s takeover of Fiat-Chrysler, which was made public in October 2019, will create a gigantic conglomerate, in which six brands with comparable characteristics will be brought together under the PSA umbrella: Peugeot, Citroen, Opel, Fiat, Alfa Romeo, and Chrysler. This will only lead to cannibalization and to factory closures. The crisis situation in China, Japan, North America, and Western Europe could become increasingly dramatic.

But where is the “electromobility” in all this? Electric cars have not actually played a major role on the world market so far—with the exception of China, where in 2019 around eight percent of new registrations were electric cars. But it was precisely in this sector in China that the biggest slump occurred as well. In 2019, electric cars only accounted for around three percent of global car production. This will not change qualitatively in the future. The VW group, which the major car manufacturers consider to be a pioneer in the field of electromobility, wants to bring “almost 70 new models of electric cars onto the market by 2028”, which would mean "a total of 22 million electric cars across all brands and modular toolkits" (Arrive 2019, 32). In the same nine-year period, however, VW still wants to produce a total of 120 million cars. By the end of the 2020s the number of cars produced with internal combustion engines will thus be largely the same as before: a good 10 million a year. The decisive factor leading to job cuts will thus be the rationalization and relocation of production. “Electromobility” is an alibi for “more of the same”, for an increase in car density, especially in the cities, and for the swindling of state funding on a large scale (see Wolf 2020). On 16 January 2020, VW boss Herbert Diess announced to a circle of his company’s top managers that VW had “not done badly” in 2019, but that “the storm is only just beginning” (Süddeutsche Zeitung, 17.1.2020). He may well be right.

Bibliography

Arrive—Das Automagazin für die Mobilität der Zukunft, 1/2019, edited by Volkswagen, Wolfsburg

OICA—International Organization of Motor Vehicle Manufacturers, 2019: Production Statistics, http://www.oica.net/production-statistics/

Wolf, Winfried, 2019: Mit dem Elektroauto in die Sackgasse. Warum E-Mobilität den Klimawandel beschleunigt, 3rd edition. March 2020, Vienna


[1] Mechanical engineering employs 1.2 million people in Germany, compared to the 820,000 who are employed by the automotive industry. In 2017, mechanical engineering sales amounted to €220 billion, 75 percent of which (€165 billion) went abroad. In the same year, Germany’s automotive industry had a turnover of 420 billion euros, and 270 billion euros worth of motor vehicles were exported (Federal Statistical Office, 2019).

[2] Carlos Ghosn headed the Renault-Nissan alliance for 15 years. He was arrested in Japan in November 2018 and remained in custody or house arrest until early January 2020. The official reason for his arrest was the non-declaration of 10 or 20 million euros of his income. The real concern was Japanese car companies Nissan and Mitsubishi (the latter also being part of this group) wanting to free themselves from the shackles of the French.

[3] A more in-depth investigation into why this is the case would certainly be worthwhile. The short time span between China’s initial emergence as a major force on the world market and the present day cannot be the reason Chinese car companies can be described as lagging behind. Car manufacturers from the USA, Japan, West Germany, and South Korea were all able to became world leaders in the industry within a decade.

[4] In 2017 and 2018, the Chinese manufacturer SAIC was still in 11th place in this group of 12, while BMW was in 13th place. According to the figures available in January 2020, in 2019 SAIC is likely to have dropped out of the group of 12  while BMW will have joined it. Incidentally, I list Nissan as an individual company and not as part of the Renault-Nissan alliance (as is the case with the OICA statistics).