The COVID-19 pandemic has hit Germany’s already weakened automotive industry particularly hard with “tremendous force,” according to a study published by the German Economic Institute (IW) on Monday.
Global supply chains were interrupted and automobile production in Germany almost came to a complete standstill in April, the study said.
Following the “supply shock,” Germany’s automotive industry was “facing a demand shock from which it is only slowly recovering,” the study’s authors, Thomas Puls and Manuel Fritsch, noted.
However, Germany’s car industry was “not a monolithic block,” Puls told Xinhua on Monday, adding that manufacturers as well as large and small suppliers were in “very different positions and were differently affected by the crisis.”
Last week, the German Association of the Automotive Industry (VDA) warned that vehicle production and exports in August were still around a third below the previous year’s level. The country’s largest car manufacturers, Volkswagen, BMW and Daimler, have recently all reported heavy losses due to COVID-19.
Volkswagen’s earnings before tax suffered a loss of 1.4 billion euros (1.65 billion U.S. dollars) in the first half of 2020, Germany’s largest carmaker said at the end of July. In the same period last year, the company had achieved a profit of 9.6 billion euros.
According to the IW study, almost 60 percent of employees in Germany’s automotive industry had been on short-time work and significant job cuts were expected.
“The impact of the pandemic is rather huge due to the fact that the automotive sector was already occupied with a transformation process which made it more vulnerable to external shocks,” the authors noted.
The German automotive industry could “look back on a golden decade” because companies “reached numerous record peaks in sales” between 2008 and 2018, the IW noted. The main driver was the strong growth of the Chinese market, from which both the German car manufacturers and the suppliers were able to profit.
In 2019, the global automotive market began to shrink. When the COVID-19 crisis hit, the German car industry was already facing high overcapacity and the technological shift towards electrical powertrain was also impacting business results, according to the study.
“As a result, the automotive industry is facing noticeable personnel adjustments for the first time in a decade and will initially fail as a growth locomotive for Germany as a business location,” the authors wrote.
China is currently regarded as the “source of hope” for the German automotive industry, the IW noted. China is now the biggest market for German car manufacturers, which generated between 25 percent and 40 percent of their sales last year, according to the IW study. (1 euro = 1.18 U.S. dollars)