Germany, the world’s fourth biggest automobile producer, accounts for the annual production of 12 million automobile units around the world, with 32% of all passenger car production out of which German OEMs account for 17%. The automotive industry remains the country’s most important economic sector and Europe’s single largest auto market.
The German auto industry has seen its share of rise and fall. The biggest threat to its stability was observed in 2008 during the economic slowdown when the German auto majors began reeling under the financial crisis. A decline in auto sales, job cuts, and wastage of investments seemed to be the norm during this period. However since then the sector has come into its own and gone from strength to strength.
The auto exports from Germany began to progressively increase after 2010 with exports mainly catering to the UK, US, and Asian markets. The Volkswagen Group has experienced huge growth and is currently one of the three biggest auto companies in the world. Germany also hosts the largest concentration of OEM plants in Europe and is committed to automotive research and development with an annual investment of € 21 billion. The focus of the German auto majors is reflected in the creation of new environmentally friendly technologies and Germany has always been deemed the most innovative auto nation worldwide.
The future of the German auto industry seems secure at the moment; nevertheless, with market volatility and other factors constraining the sector, there is an increased need to secure it. Given that automotive manufacturing in Germany is one of the largest sources of employment, GDP, and tax revenue for the country, it becomes important to ensure the viability of this industry. Although German auto majors are investing heavily on research and development as well as looking at innovation, they might be running out of options. Moreover there is a growing need to sustain the work force and come up with cost effective technologies. The increasing dependency on third world countries for manufacture of custom auto parts is also a growing trend. Native technology combined with outsourced part making is most definitely the future road.
There has been huge growth in ancillary industries over the years where in the German auto majors have lowered production costs by transferring aspects of production into these industries. It is evident that the costs are substantially less due to the lower wages in these industries. The future growth driver for the German auto majors is increased auto sales on account of the expansion of the auto ancillary industry. It is estimated that German auto sales is bound to grow by 5-7% to around US$ 46 billion going forward.
Despite all the short comings, there is a huge opportunity waiting for investors in the automobile sector in Germany; there is constant expansion and innovation in the sector and this is evident from the large number of auto patents applied for by Germany. Further, as the country is the gateway to the auto market of Europe there is a need for new strategies to implement sourcing of auto parts which are custom made in countries such as India and China. This would mean that there is an increased need for global sourcing; Brickwork Sourcing works with global automobile companies and has capabilities of providing end-to-end sourcing, vendor and supply chain management solutions.
Should German auto majors employ suppliers from India & China for auto components?