Challenges Facing German Automakers Amidst Global Competition

Recent analysis by EY, a leading auditing and consulting firm, reveals that German automotive manufacturers faced significant challenges in 2024 compared to many of their global competitors. The report highlights a concerning trend for the German automotive sector, which recorded a 17% decline in revenue, marking it as one of the few groups to experience such a downturn.

Volkswagen (VW), while managing to achieve a slight revenue increase, saw both BMW and Mercedes-Benz report lower sales figures. Overall, the revenues of these three companies dropped by 2.8%. In stark contrast, the total revenue of all 16 leading automotive manufacturers surveyed rose by 1.6%, surpassing the EUR2 trillion mark. Despite accounting for approximately 30% of the total revenue, the share of the German trio has seen a decline compared to previous years.

Furthermore, when analyzing operational profits, VW, BMW, and Mercedes lagged significantly behind their competitors, particularly those from Japan and the United States. According to EY market observer Constantin Gall, the situation for German manufacturers remains dire. The weak sales performance and high investments in electric mobility are not yielding the anticipated returns, primarily due to lower-than-expected consumer demand.

Gall pointed out that issues within the companies, including costly software failures, restructuring expenses, and product recalls, have compounded the problems. He noted that while premium manufacturers were previously able to command high prices, the market dynamics have shifted dramatically. The current economic landscape and ongoing global conflicts have led to a marked decline in demand, intensifying price competition.

The automotive industry is grappling with a crisis due to sluggish economic growth and a notable reduction in demand for electric vehicles (EVs). Several manufacturers and suppliers have announced cost-cutting measures and workforce reductions in response to the challenging market conditions.

The situation is likely to worsen due to escalating trade tensions with the United States. Recently, U.S. President Donald Trump announced a 25% tariff on all auto imports starting in early April, a move that could significantly impact German manufacturers, as the U.S. remains their largest export market.

Gall expressed skepticism about a quick recovery in 2025, predicting further declines in sales, revenue, and profits. He emphasized that the economic stagnation in Europe, combined with the anticipated impact of new tariffs in the U.S. and fierce price competition in China, poses serious challenges for German automakers. To navigate these turbulent times, companies must undertake strategic realignment and focus on their core strengths. While austerity measures may be necessary, Gall noted that merely cutting costs will not suffice for long-term recovery.

As the automotive landscape continues to evolve, the German automotive industry must adapt to maintain its competitive edge in an increasingly crowded market.