Germany’s car industry is losing its famous Vorsprung – and it can’t all be blamed on Trump and tariffs

 

Germany’s car industry is losing its famous Vorsprung – and it can’t all be blamed on Trump and tariffs

Konstantin Richter

It was once the envy of the world – but now its arrogance and failure to change or take risks lie at the root of its decline

 

Thu 14 Nov 2024 08.00 CET

https://www.theguardian.com/commentisfree/2024/nov/14/germany-car-industry-donald-trump-tariffs

 

About 50 years ago, a man named Hans Bauer who worked in marketing for a German carmaker came up with the slogan Vorsprung durch Technik or “advantage through technology”. Poetry it wasn’t. The slogan seemed a little clumsy and too heavy on consonants, sounding harsh even to German ears. But it stuck because it captured something that rang true. The Germans had an edge in manufacturing cars and other machines.

 

The company that employed Bauer was Audi, which has used the slogan ever since. For a long time, there seemed to be no need for adjustment. True, whenever the Germans experienced an economic downturn, they asked themselves whether the all-important carmakers had lost their edge. But then some tweaks would be made, and the engine would roar back to life. This time feels different. And that’s not just because of recent bad news, which includes BMW and Mercedes posting profit warnings, Volkswagen pondering massive job cuts and, on top of it all, Donald Trump threatening to slap steep tariffs on US imports. It’s because the Germans are now realising they may have lost that special something called Vorsprung.

 

The history of the country’s car industry goes back to Gottlieb Daimler and Carl Benz, inventors whose pioneering work didn’t translate into immediate business success. Throughout the first half of the 20th century, German carmakers were run by engineers who cared more about technology than sales. The production was time-intensive, and there weren’t enough buyers for the expensive and carefully crafted automobiles.

 

For inspiration, the carmakers looked to Detroit where Henry Ford had introduced assembly lines and started mass-producing cars. A man named Adolf Hitler cooked up the idea for a Volkswagen, a “people’s car”, cheap enough for ordinary Germans to buy. But the idea only came to fruition once Hitler was gone. In the 1950s, Volkswagen combined German engineering prowess with US-style mass production to turn the Beetle into a global success. Daimler-Benz, Audi and BMW did the same for the international luxury sector, making cars known for their sleek design and meticulous engineering. It was only then that German auto manufacturing became what it is today – a key industry directly employing about 800,000 people.

 

What’s more, the industry has become synonymous with the German economy as a whole because it so perfectly encapsulates the nation’s business model. In essence, the carmakers rely on highly skilled and well-paid workers who tend to stay with one company throughout their careers. Codetermination, whereby employees have some say in management decisions, is the norm. Although German companies are competitors, they cooperate in the dual vocational training system that allows for a pool of shared knowledge. More often than not, German car managers have a strong background in engineering, not in sales and marketing.

 

All of the above has been conducive to a distinctive business culture. The Germans favour incremental innovation over radical change, meaning that they focus on optimising existing technology rather than creating something new and disruptive. In the case of the automobile – once the Germans had introduced cars with internal combustion engines in the late 19th century, they kept refining the details to maintain their engineering edge.

 

However, the sense of superiority that Germans developed over the years has produced some spectacular failures. In the 1980s, Mercedes, then called Daimler-Benz, went on a billion-dollar spree to turn the automaker into a diversified technology group. After that strategy faltered, the company took over the US automaker Chrysler, hoping to forge a truly global player. The subsequent collapse of the merger was blamed on “cultural differences”, a euphemism for German arrogance: the Daimler executives thought they knew better than their US counterparts. Arrogance played a role, too, in the scandal over Volkswagen’s sophisticated but disastrous attempts to hide the illegal emissions levels of its cars.

 

But the real threat to German excellence did not come from within. In the early noughties, when the California-based Elon Musk placed a risky bet on Tesla, traditional automakers were staying away from electric vehicles because they did not want to cannibalise existing business, and the Germans were particularly hesitant. The new technology threatened to obliterate their combustible-engine edge and to endanger German suppliers whose components weren’t needed in electric vehicles (EVs). Tesla, backed by the might of the US financial markets, is now worth over $1tn, about seven times as much as Daimler, Volkswagen and BMW combined.

 

Still worse is the threat from China. In the 1980s, Volkswagen was among the first western companies to open a plant in the People’s Republic. Other Germans followed suit. But there was a snag. In order to conquer the vast market, western companies had to establish joint ventures with fledgling Chinese companies. So the Germans handed over expertise to future competitors. They believed – arrogantly perhaps – that they’d manage to maintain their technological lead anyway. And for a long time that worked out well. Until it didn’t.

 

Volkswagen was the first to feel it. While the German carmaker was still heavily invested in traditional technology, Chinese competitors put their (and the government’s) money into electric vehicles, while also benefiting from lower labour rates and advantages in battery technology. As a result, Volkswagen has ceded its position as China’s bestselling brand to BYD, and its market share is shrinking fast.

 

Now the same thing is happening to BMW, Mercedes and Audi. Newfound competitors such as Nio and Xiaomi caught up fast and are producing electric luxury-type cars at much lower prices. The Germans were aghast recently when they saw a Chinese video that pitted the Nio ET9 against the Mercedes-Maybach. Both cars took a pyramid of champagne glasses for a bumpy ride. But only the Mercedes spilled the drinks.

 

In China and some other markets, too, the German carmakers are finding themselves in an unusual position. They have to play catch-up and they don’t like it. Struggling in the EV market, some manufacturers are now lobbying for the EU to postpone the 2035 deadline for traditional engines. Others are desperately hoping that restrictions on permissible CO2 emissions will be adjusted in their favour. In other words, they are trying to turn back the clock.

 

The car industry is faced with a situation that affects other businesses here too. There’s a widespread sense of nostalgia for the economic miracle of the 1950s and 1960s when corporate Germany went through a period of unprecedented growth. As a result, many companies, while supposedly willing to embrace risk and radical innovation, are trying to preserve as much as possible of the business culture that once made them successful.

 

A few years ago, Audi introduced a new slogan, in English: “Future is an attitude”. Even so, the carmaker didn’t want to chuck the tried-and-tested Vorsprung durch Technik. So now the good old slogan which harks back to a time when German technology was dominant coexists with another one that enthuses about an uncertain future. The message seems to be that the Germans want to reverse while also going forward. But here’s the problem: they haven’t yet built the car that can do both at the same time.

 

Konstantin Richter is a Berlin-based writer who is now working on a book about the history of corporate Germany