low revs Revolutionaries at Rest

A veneer of good times masks an unproductive inertia that will come to haunt the German car industry, argues Handelsblatt’s automotive writer.
Good times in the past but can they continue?

If you listen to the bosses of the German automobile industry these days, you won’t believe your ears.

In Munich, the head of BMW, Harald Krüger, used the company’s centennial to prepare the way for the carmaker’s transition to a leading mobility provider.

In Stuttgart, Daimler’s boss Dieter Zetsche takes off his tie and lets his junior executives work out a new management culture.

And Rupert Stadler at Audi is formulating an ambitious goal: In the future, half of his company’s revenues will come from service-related transactions. On a current basis, that would be €29 billion ($31.9 billion) a year. Sixt, Germany’s largest car rental service, doesn’t even manage €2 billion.

For engineers and production workers in Germany, an electric car that drives with batteries from Korea is a bad deal.

What's now taking shape in these boardrooms is a prescribed revolution. This is because a respect for the future is growing from Munich to Wolfsburg.

On their trips from Silicon Valley to Shanghai, the car executives have come to realize their business model will be under massive threat in the not-too-distant future. With electromobility, the gradual introduction of driverless driving and the digitalization of business processes, a radical fundamental change is at their doorstep.

Uber, Google, Tesla and a half dozen Chinese suppliers are standing ready to build electric cars themselves and to carve up the necessary digital infrastructure.

In this scenario, a car with a diesel engine and rear-view backup camera is a bit like the perfect typewriter shortly before the introduction of the PC. And the producers of those are earning less today with them than the Internet companies.

Now knowing something theoretically is one thing, the tangible reality is another.

The problem the revolutionaries are having on the executive floors is that everything in their companies is essentially going so well that in fact everything speaks against change. The low price of oil and the weak euro suggest a picture that has little to do with a crisis.

The German carmakers’ factories are running full steam worldwide. In February, Daimler presented the best business year of all time; this coming week BMW will add to that with another record profit. And if a couple of engineers, as VW presents it, hadn’t played tricks with their diesel engines, Volkswagen would be the largest carmaker in the world and have no earning problems.

The German car industry so far has survived every change, say those who don't see a problem. Neither the oil crisis at the start of the 1970s nor the introduction of the catalytic converter did the industry’s growth any harm. On the contrary, the cars got more efficient and more innovative, competitive advantages the German industry is still feeding off today. The attack by Japanese car producers, who rolled out on the market with efficiency and quality in the 1980s, just made Germany's car industry stronger still.

Germany's Car Industry-01 carmakers car suppliers VW Volkswagen Daimler Mercedes BMWW Audi


It's led us to where we are today, with luxury SUVs, that secure bonuses and jobs.

But these vehicles also symbolically stand for the inertia of an industry that all too seldom leaves its comfort zone.

In times like these, people are reluctant to take on risks with business models in unknown fields.

For engineers and production workers in Germany, an electric car that drives with batteries from Korea is a bad deal. And the prospects of no longer drawing their profit margins from car sales but rather from brokering rides in a self-driving fleet of taxis is not an appealing prospect for the carmakers’ marketing and sales divisions.

The pithy announcements from the boardrooms are mostly messages sent internally. Mr. Krüger, Mr. Zetsche and Mr. Stadler know of the inertia of their companies and that many divisions change as a threat. They know, however, that the greatest threat, consisting mainly of simply carrying on with the old business models, is difficult to convey in times of record earnings.

The alternative would be to wait until sales collapse, profits dwindle and creditworthiness drops. Then what would have been today a transformation of a still blooming industry will in a few years be a tough restructuring that we already know from the times of the steel and coal crisis in the Ruhr valley.

That's something Germany must avoid, given the size of the automobile industry. For that reason alone, we should wish the self-appointed revolutionaries in the boardrooms the best of luck and the power to do it.


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