The 26th SME Day of the German Association of the Automotive Industry (VDA) opened today in Bonn. This year, the conference is held under the theme "Future. Germany as a Business Location: Financing, Innovation, and Resilience in the Automotive Value Chain." Over the course of two days, more than 200 participants from business, politics, and academia are discussing the future of automotive value creation through keynotes, deep-dive sessions, and panel discussions.

"These are undoubtedly challenging times for the automotive industry: rising geopolitical tensions, multiple crises, spreading protectionism, the transformation toward climate-neutral, digital mobility, and Germany’s standing as a business location—which is increasingly losing international competitiveness—all present challenges for our globally active industry. The situation demands continuous peak performance from companies, especially those in the automotive SME sector, and has significant consequences for growth and employment across many regions of Germany. I am therefore impressed every day by the innovative spirit, investment, and passion with which the SMEs in our industry meet the ever-changing tasks and demands placed upon them," VDA President Hildegard Müller said at the opening of the VDA SME Day.

In her speech in Bonn, Müller also addressed the results of a recent survey* conducted by the VDA among automotive suppliers (Manufacturer Group III) and medium-sized manufacturers of trailers, bodies, and buses (Manufacturer Group II). The recurring survey shows that Germany continues to face significant pressure as an industrial and manufacturing location. Companies are grappling with a severely strained current business situation, business expectations have deteriorated, and investment activity in Germany remains weak.

In detail: 41% of companies rated their current situation as very poor or poor, while only 22% rated it as good or very good. The outlook for the coming twelve months is also very critical: one in three companies (32%) anticipates that its economic performance will deteriorate (26%) or even deteriorate significantly (6%). Only 25% expect an improvement (or significant improvement). In the previous survey conducted in January of this year, the proportion of companies looking optimistically toward the near future was still larger than the proportion expecting the situation to worsen.

Investment activity in Germany remains weak—employment growth is occurring almost exclusively abroad

In the survey, 67% of companies stated that they were forced to postpone, relocate abroad, or completely cancel investments originally planned for Germany. Only 2% indicated an intention to increase their investments in Germany given the current situation. Regrettably, job cuts in Germany are continuing: 54% are currently reducing their workforce, while only 3% are adding jobs—the lowest figure recorded in our survey to date. Furthermore, 44% of the companies cutting jobs in Germany are simultaneously expanding their workforce abroad. Only 17% of them are reducing employment abroad as well.

The job cuts affect a wide range of roles: 64% of companies reducing their workforce report cutting administrative and overhead functions, while 54% are cutting production-related jobs. Of particular concern is the fact that 36% of the affected companies are increasingly cutting jobs in areas related to development and innovation. Consistent with this, just under a third of the surveyed companies plan to increase their research and development investments in Germany, whereas two-thirds anticipate a decline in spending. At the same time, around half of the companies intend to expand their R&D investments abroad.

Müller: “The results of our survey highlight the crisis Germany faces as a business location. Conditions here are placing increasing pressure on our industry—particularly the automotive SMEs. The country’s international competitiveness is increasingly lacking. The consequence: for economic reasons, companies are unfortunately forced to decide against Germany and Europe on a daily basis, relocating both investments and jobs. Policymakers in Brussels and Berlin must now finally take swift and decisive action to strengthen the location and preserve prosperity and employment here. After all, jobs can only be preserved—and new ones created—in a competitive business environment. We recently demonstrated that future employment trends depend significantly on the powertrain mix. A higher share of plug-in hybrids, range extenders, and internal combustion engines—increasingly powered by renewable fuels—compared to current CO₂ regulations could safeguard around 50,000 jobs in Germany. This would noticeably mitigate the negative impact of the transformation on employment while still advancing the path toward climate-neutral mobility. In short: a technology mix offers strengths and opportunities for climate protection, as well as for prosperity and jobs. The Federal Government must therefore continue to advocate strongly in Brussels for genuine technology neutrality. The entire commercial vehicle sector also finally requires the necessary political attention.” 

Key expectation targeting federal government: cutting red tape

Another finding of the survey is that bureaucracy remains #1 challenge for SMEs in the automotive sector. Indeed, 84% reported being heavily or even very heavily burdened by bureaucratic requirements. Consistent with this, 71% believe that the federal government should make cutting red tape its top priority in the coming months.

Isabelle Kirschbaum-Rupf, VDA Board Member, Spokesperson for the VDA SME Forum, and Shareholder of Rupf Industries GmbH: "Small and medium-sized suppliers are practically drowning in bureaucracy—in an ever-growing number of regulations and requirements. This ties up valuable resources and consumes money and energy that, as an entrepreneur, one would actually prefer to invest in the company and its workforce. Furthermore, high labor costs by international standards and a lack of flexibility in labor laws pose major challenges for Germany as an industrial location. Germany and Europe finally need genuine bureaucratic relief and greater trust in businesses."

In addition to excessive bureaucracy and challenges in financing the industry's transformation, automotive SMEs are also burdened by taxes and levies; 63% view these as a major strain. High electricity prices were cited as a burden by 53% of respondents, and high gas prices by 43%. Energy prices are thus playing a more significant role again—particularly in the wake of the war in the Middle East—than they did in our survey at the beginning of the year.

Around one in two companies (46%) reports being affected by the war in the Middle East. The economic impact is particularly evident in rising prices: 65% of the affected companies cite higher fuel prices as a key burden, 64% point to more expensive intermediate products or components, and 58% mention higher energy costs. Only about 34% of the surveyed companies stated that they have not yet been affected by the war's impact but anticipate doing so in the future.

Success factors of Germany as a business location

Despite the various challenges associated with Germany as a business location, many factors continue to speak in its favor: 66% of companies specifically highlighted the country's industrial network. The availability of skilled labor was also noted positively (53%).

Kirschbaum-Rupf continued: "The strong industrial network comprising manufacturers and suppliers like us remains one of the key strengths of Germany as an automotive production hub. The automotive SME sector, in particular, is deeply rooted in regions across the country. It generates local prosperity and a sense of identity. Often, multiple generations of the same family work for these companies. That is precisely why no one relocates lightly—we want to stay here. It is all the more important, then, to see political action; the automotive SME sector needs relief measures to ensure a successful future—right here in Germany."

 

*The survey was conducted from May 12 to 24. A total of 116 companies participated. This provides the VDA with reliable data on the current situation and outlook of the automotive industry. The VDA has been conducting this survey regularly since spring 2020.