Market developments

    Manufacturing increasingly internationalized

    In 2020, German passenger car manufacturing fell to its lowest level since 1975. Further exacerbating a continuing trend.

    In 2020, German passenger car manufacturing fell to its lowest level since 1975. Further exacerbating a continuing trend.

    Domestic manufacturing: Pandemic cause of slump

    The spread of the coronavirus pandemic in Europe in the first quarter of 2020 also led to a halt in manufacturing in Germany. In April, almost all passenger car production came to a standstill. The reason for this, in addition to employee safety, was the global dovetailing of supply chains. Assembly lines in almost every country had to be stopped. The subsequent restart was sluggish, with the sudden collapse in demand having a negative impact.

    One important instrument for securing jobs was reduced work hours, which affected nearly the entire sector, at least in April. In addition, the economic stimulus package from June onward, with the temporary reduction in sales tax until the end of the year and the increase in the government's share of the environmental bonus, further accelerated the transformation toward electric powertrains.

    As a result, German manufacturing fell 25% in 2020 to 3.5 million passenger cars, the lowest level since 1975. In general, domestic manufacturing of passenger cars has fallen by 2.2 million over the past four years, but the pandemic accounts for about half of this. The rest is due to structural factors, such as the transformation to electric powertrains, the segment mix, location conditions, and increasing on-site production.

    Each factor in turn

    The upswing in e-mobility is accompanied by a move away from combustion engines. At 31%, both gasoline and diesel engines saw a more than disproportionate decline in production in Germany in 2020. This hit German manufacturers particularly hard, as they are particularly strong when it comes to diesel. The success in the field of electromobility can currently only partially compensate for the significantly higher decline in combustion engines.

    In addition, there has been a strong trend toward efficient compact SUVs for many years now. Recently German OEMs have located the manufacture of new models in this segment primarily in other European countries.

    The production of small and compact cars in Germany has also been declining for many years, mainly due to the very high cost of labor, which arises to a large extent from substantial additional wage costs.

    Germany could only benefit to a limited extent from the solid market development in China in 2020 because only 5% of the vehicles sold there by German manufacturers come from German production; the rest are manufactured locally.

    In the global country rankings, Germany can nevertheless defend its fourth place ahead of Mexico and behind China, the USA, and Japan. In Europe, Germany remains by far the most important manufacturing location.

    2020 brought the Europe-wide breakthrough of electromobility, partially due to ambitious CO2 targets and government subsidies. German manufacturers are very well-positioned here, as illustrated by the 2020 production figures, which more than doubled compared with the previous year. 428,400 passenger cars with electric motors (including plug-ins) rolled off domestic assembly lines, almost tripling the share of electric vehicles, in total production, from 4.2 to 12.2%. Domestic production of all-electric passenger cars rose by 111% to 173,500 vehicles.

    Production of passenger cars in Germany
    Production of passenger cars in Germany

    Manufacturing abroad: One in five new cars worldwide bears a German logo

    For the first time since the financial crisis in 2009, Germany's foreign passenger car production suffered a setback in 2020, falling by 14% to 9.8 million units. The main contributory factor here was the almost global production standstill due to the coronavirus pandemic in April and the subsequent slow restart. In the last two quarters of 2020, foreign production returned to 2019 levels, slowing the decline when taken for the year. At the same time, global production declined by 16%, so Germany's foreign manufacturing sites performed well by international standards. Worldwide, as in the previous year, one in five new cars bore the logo of a German brand.

    Pandemic hits Europe hardest, Asia suffers the least

    The hardest region hit was Europe, where foreign passenger car production by German OEMs in 2020 slumped by 22% to 3.1 million units. The decisive reason for this was the weakness of the European market (-24%) due to the pandemic, which, in addition to halting production also led to harsh countermeasures in Europe such as, in some cases, closed car dealerships and temporarily closed borders. In the ranking of EU foreign locations, the Czech Republic came out on top with 750,000 passenger cars (-17%), ahead of Spain with 658,000 units (-28%). Hungary, with 321,000 passenger cars (-9%), moved ahead of Slovakia with 309,000 vehicles (-18%) thanks to attractive, relatively new models in the compact SUV segment.

    In continental America, 1.6 million passenger cars (-15%) rolled off the assembly lines of German manufacturers. The most important country here was the USA, which almost maintained its output volume at 742,000 vehicles (-4%). In Mexico, production fell by 17% to 571,000 units, and in Brazil, hit particularly hard by the Corona crisis, there was even a slump of 30% to 306,000 units.

    Asia was least affected by the crisis, with foreign production falling by 6% to 4.9 million units. First and foremost, China was able to further expand its position as the most important foreign manufacturing location. With 4.8 million passenger cars, German OEMs saw a slight decline of 5%, but at the same time overall passenger car production in China fell by 7%. Here, too, German manufacturers were able to hold their own in a difficult environment.

    Premium as key to success

    Manufacturing outside Germany has more than doubled since 2009, overtaking domestic production in 2010. The covid-19 crisis has meant that 74% of all passenger cars produced by German OEMs are now made abroad. A key success factor has been the focus on premium models, the share of which has increased significantly from 16 to 44% since 2009. The global positioning of German OEMs is also reflected in the fact that, at 4.3 million vehicles, they now manufacture around one million more premium passenger cars abroad than at home.

    Foreign passenger car production of German brands
    Foreign passenger car production of German brands

    Germany has the world's highest labor costs in the automotive sector

    The high quality and increasing complexity of today's German passenger cars due to sophisticated exhaust treatment and assistance systems comes at a price. Added to this is the shift toward electromobility that is now in full swing. To remain attractive to the highly contested skilled workforce, automotive companies in Germany must offer attractive remuneration. In 2020, Germany once again had the highest labor costs in the automotive industry by international standards, at 56 euros per hour. With an increase of 2%, the gap to second-place Sweden, whose labor costs increased by only 1% to 44 euros, has widened further.

    Over the past ten years, within the Eurozone only Slovakia (85%) has recorded a higher rise in labor costs than Germany (30%). However, labor costs in Slovakia are less than 30% of those in Germany. There is continued increasing pressure on domestic manufacturing, which has fallen by almost one-fifth from 2016 to 2019, while German OEMs' production in other European countries has risen by 15% over the same period. Austria follows in third place with 43 euros, ahead of Belgium with 42 euros. Belgium is the only Eurozone country where labor costs have remained constant since 2010. France ranked fifth with 42 euros (+2 percent), followed by the Netherlands with 39 euros. In the UK, labor costs rose by 14% to 37 euros in 2020 due to fewer working hours as a result of the coronavirus pandemic. However, labor costs in the UK are still below their 2015 level, as the Brexit referendum led to a significant devaluation of the pound in 2016/2017. In Italy, labor costs rose by a good 3% to 31 euros in 2020; the second increase of more than 3% in succession. The situation in Spain was similar at 27 euros (+5%).

    At the lower end of the ranking are Eastern European countries with labor costs between 9 euros (Romania) and 18 euros (Slovenia). These emerging automotive nations have seen high increases of between 36% (Slovenia) and 95% (Romania) since 2010, so that labor cost levels are gradually converging with the other EU countries. In Portugal, labor costs rose by 9% to 16 euros in 2020 and are now once again between Slovakia (15 euros) and the Czech Republic (17 euros).

    Labor costs in the automotive industry
    Labor costs in the automotive industry
    Alexander Fritz
    Economic Intelligence

    Alexander Fritz

    Automotive forecasts, production and export statistics, CO2 emissions, electromobility, structural analyses
    +49 30 897842-333

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