MNI INTERVIEW: German Car Makers Have 5 Yrs To Change-Suedekum
MNI (LONDON) - The fate of Europe’s biggest export-based manufacturing economy could be determined in the next five years, a leading German government adviser told MNI, with a new “Marshall Plan” needed to counter Chinese competition and declining U.S. demand for the country’s goods.
Despite long-standing engineering know-how and the potential for digitalisation to increase productivity, structural challenges and political dithering mean the export-driven success of the 2000s may never return, Jens Suedekum said in an interview.
“In the case of China, it’s almost impossible to compete, in part for political reasons, but also because the German car industry doesn't really have the type of products that China wants. I would not place my bet on the U.S. being willing to remain the demander of last resort for German export manufacturers.”
For Germany’s vital car manufacturing companies in particular to survive, they will first have to come up with cheaper vehicles, “otherwise they're just going to die,” Suedekum said. (See MNI INTERVIEW: VW Crisis Should Be Wake-Up Call - IWK's Demary)
“Mercedes and BMW are still okay because they populate the luxury segment of the markets, where there is less competition. But there's no guarantee that five years down the road the Chinese are not going to challenge them there as well.
“The biggest problem is Volkswagen. Are they going to die? Probably not in the short-term, because what they're already doing is putting all the cost pressure that they face onto their suppliers. They're restructuring value chains and moving things in-house that they used to outsource. So we will see lots of suppliers - the smaller ones in particular - dying, workers being reallocated and so forth.”
CONSUMERS PREFER TO SAVE
Germany's economy has flatlined in 2024, but is expected to pick up slightly in 2025, said Suedukum, professor of international economics at the University of Duesseldorf and a member of the Scientific Advisory Board at the Federal Ministry for Economic Affairs and Climate Action.
Easier monetary policy will help construction, boosting the chances of a broader recovery starting in the second quarter of 2025- although Suedekum said he was still not entirely confident, with consumers showing a propensity to save rather than spend real wage gains. (See MNI SOURCES: ECB Officials See Rate Expectations As Stretched)
Pressured profit margins and increased uncertainty on the part of firms means Germany’s labour market, which has remained remarkably stable throughout the post-Covid period, in part due to labour hoarding, may soon show signs of cracking, Suedekum said.
“If you have no business, then you cannot hold on to your workers forever. I have spoken to many people who expect a significant deterioration of the labour market in the not-so-distant future, and of course some major firms have already announced cuts, especially manufacturing firms, the car industry, their suppliers and so forth. So if that really unravels, that will further worsen the mood, and then people will be even more likely to hang on to their money rather than consuming.” (See MNI INTERVIEW: Prices Key To Puzzle Of Weak German Consumption)
Policy uncertainty is a major issue, with budget cuts following last November’s Constitutional Court ruling on government spending -- which affected subsidies for electric vehicle production -- creating the impression that government decisions are no longer reliable.
“Everybody knows that we need a switch in fiscal policy. With the current government that is impossible because they are internally divided, and even if they weren’t it would require a change to the constitution they would not be able to get.”
DRAGHI REPORT
Suedekum suggested German attention should focus less on the shared debt-raising element of former ECB president Mario Draghi’s recent report on improving European competitiveness, and pay closer attention to his call for institutional reform, focused industrial policy, and massive investment.
Draghi’s recommendations were very similar to those in a Federation of German Industries report published a day later, Suedekum said.
“They called for a new Marshall Plan worth EUR1.4 trillion - just under 5% of German GDP - by 2030, to transform German industry, including EUR 70billion per year allocated for decarbonisation and infrastructure investment, to transform German industry, with military and security spending on top of that.
“Perhaps if the CDU wins the next general election they will eventually agree to debt brake reform. That said, there's no guarantee in the short term that we will actually move into that direction. Instead we just continue to lose time while the rest of the world kind of keeps on developing and investing, while the domestic environment becomes increasingly toxic.”