Volkswagen and Co.: Car manufacturers are worried about European business

Created: 11/28/2022, 5:20 p.m

A VW car is being assembled: The German automotive industry is once again posting record profits.

However, Europe gives some people a headache.

© Hauke-Christian Dittrich /dpa

At the end of the year, German car manufacturers again posted record profits.

Business in China was surprisingly good, but the European market is causing concern.

Munich – According to an analysis, the major car manufacturers in Germany continue to make record profits.

However, according to estimates by the manufacturer Volkswagen, Europe has to hurry up compared to China and the USA because of the energy crisis and inflation.

According to the management consultancy EY, business was overall very good for many car manufacturers up to the end of September – especially in China, despite the highly controversial zero-Covid strategy there.

However, the new Volkswagen brand boss Thomas Schäfer warned on Monday that Europe had "no time to lose" in view of the rise in energy prices and the subsidy policy that was often perceived as sluggish.

Otherwise, in the worst case, billion-euro investment projects such as battery cell plants could be at risk.

The head of the Western Europe mobility division at EY, Constantin Gall, assesses the overall situation in the core industry as clearly positive: "The bottom line is that the third quarter was a dream quarter despite the slowing economy and a very difficult geopolitical situation." The supply of microchips has been faltering since the Corona crisis is slowly improving and demand for full-size cars remains high.

EY director fears that many Europeans will not consume enough cars

But the mass market could come under pressure, according to EY man Peter Fuss.

“We are currently experiencing that broad sections of the population are having to accept a significant loss of purchasing power.

This means that fewer and fewer people can or want to afford a new car.” Discount battles are more likely to be avoided with high-priced models.

From July to September, total income from continuing operations at the 16 companies surveyed was the highest ever recorded in a third quarter, according to EY.

In terms of operating profit, Mercedes-Benz was ahead by a nose and, with 5.2 billion euros, was well ahead of VW, where 4.3 billion euros was enough for second place.

BMW came fifth with 3.7 billion euros.

The world's largest manufacturer Toyota, on the other hand, had to accept a drop in profits by a quarter - 4.0 billion euros were still enough for third place.

In fourth place was the US automaker General Motors with 3.8 billion euros.

The Chinese market is regenerating – sales by German carmakers are increasing again

The weal and woe of the auto industry depend largely on China as the largest market.

From there, the pandemic had torn apart many supply chains, and rigorous lockdowns also triggered economic shock waves.

Recently, however, the industry in the People's Republic has been on the up again: German manufacturers increased their sales by 28 percent compared to the same quarter of the previous year, after the previous figures had fallen to a significantly weaker level.

There are currently unusually sharp protests in China against the government's strict anti-Covid policy.

Irrespective of this, Fuss said: "In China, the trees no longer grow into the sky, the market is very competitive and demanding."

VW's China boss: Europe is becoming less attractive

The Volkswagen Group also operates numerous plants in the country.

Schäfer, who took over the management of the main VW passenger car brand from the current China boss Ralf Brandstätter in the summer, believes that the pace of development in the Far East and in other regions could continue to increase at the expense of the home market of Europe.

"In an international comparison, Germany and the European Union are rapidly losing their attractiveness and competitiveness," wrote the top manager on the online network LinkedIn.

“The USA, Canada, China, Southeast Asia and regions like North Africa are stepping on the gas.

We are treading water.”

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Schäfer warned that economic policy must go all out when it comes to the relief.

"If we don't succeed in lowering energy prices in Germany and Europe quickly and reliably, investments in energy-intensive production or in new battery cell factories will no longer be feasible." VW wants at least six of its own battery cell factories to be up and running on the continent by the end of the decade bring.

In addition, the largest European car manufacturer is readjusting its electrical and software strategy.

BMW is also concerned about China lockdowns

As the person responsible for bulk business in the group, he is "deeply concerned" about Europe's competitiveness, said Schäfer.

The same applies to the processes of the EU's economic development policy, which are either designed too much for individual regions or for the long term.

New initiatives by Germany and France on industrial policy cooperation are “a step in the right direction.

But the joint paper does not go far enough at the crucial points.” Berlin and Paris want to work more closely together in central key technologies.

Competitor BMW expects that there will be enough gas in Germany in winter.

But the car industry needs a secure energy supply at competitive prices, said CEO Oliver Zipse.

All in all, the Bavarians expect stable business in 2023 – however, the lockdowns in China continue to cause concern here too.