Germany’ s Auto Industry Reset
Once the global standard for automotive engineering and manufacturing, Germany ' s industry is struggling.
With collapsing sales in China and rising production costs in Germany, the world ' s once-unrivalled automotive superpower is in crisis. This could have real implications for the South African automotive supply chain. Because three of the seven local automotive OEMs are German.
Automotive production overcapacity in Europe is nearly 5 million units, meaning there are nearly 30 automotive assembly plants too many. And with Germany being the manufacturing and automotive powerhouse of Europe, that mismatch in production and demand means an unprecedented reset of the German auto industry must happen.
Analysts and the German government have estimated that initial restructuring could cost more than 100,000 primary auto industry jobs. Germany ' s skilled technical labour force means that some of those job losses in the auto sector can be reassigned to the defence industry. With NATO defence spending scheduled to increase to record levels over the next few years, Germany ' s legacy manufacturing base will benefit from the production of military vehicles.
VW is most at risk
As Germany ' s largest automaker, VW is most at risk. Its premium brand, Porsche, once set the standard for record per-unit margins in the auto industry. Last year, it suffered its worst financial performance in decades. Massive overinvestment in EV supply chains across Audi, Porsche and VW has been disastrous for the VAG Group, as EV buyer demand has been nowhere near production planning and revenue projections.
VW ' s management has announced plans to close four assembly plants in Germany. For Germany ' s biggest automotive group, it ' s an unprecedented step. VW has never closed a German automotive assembly plant in nearly 90 years of operation. Its assembly workers are also better paid than those at BMW or Mercedes-Benz, with strong union representation.
The VW production cost base in Germany is no longer tenable at its current scale. This issue has been building for years and has been compounded in the last few years by spiralling German industrial energy costs. The outcome, now, is VW ' s supervisory board on a direct collision course with the immensely powerful IG Metall trade union.
What about ' Benz and BMW?
Mercedes-Benz is in a better position than the VW Group, but it ' s still suffering enormous market contraction in China. Operating profits at the world ' s oldest and most established automaker dropped by 50 %.
Of the German automakers, BMW is probably in the best position, with its engineering resources cleverly deployed for a multi-powertrain strategy across global markets. Despite this, BMW ' s operating profit fell 11.5 % in the 2026 financial year.
The advantage that BMW has is that its multi-powertrain vehicle platforms are scaling better than those of its German competitors. That ' s a testament to BMW ' s prioritisation of engineering over excessive management planning and cost accounting.
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