ACEA

- GERMANY

A pillar of the national economy

Germany has a special relationship with the motor car. Considered by many as the birthplace of the automobile – in 1901 it was already producing 900 vehicles a year - German engineers such as Karl Benz, Gottlieb Daimler and Wilhelm Maybach were pathfinders in the technical development of the internal combustion engine. Germany’s famous premium brands of today are coveted around the world. The names of companies such as Porsche, Audi, Mercedes and BMW, as well as the mass market producer, Volkswagen, are synonymous with style and quality. International marques, including Opel (GM) and Ford, are also an important feature on the automotive landscape.

In recent years, the German auto industry has managed to keep its head above water at a time when other industrial sectors were struggling and the domestic economy was flat. Over the past decade, the industry has doubled its revenues and raised its share of manufacturing output from 12 per cent to 19 per cent.

The industry consists of a small number of global lead manufacturers supported by a large number of family-owned small and medium-sized suppliers (2,500 enterprises in all). It generates a turnover of €226bn and an export surplus of €80bn. Since reunification, auto manufacturing has become a crucial pillar of the East German economy with seven production centres and over 700 local suppliers.

Production

German manufacturers (including Chrysler) produced 11.3 million cars in 2006 in 23 countries. German factories turned out 5.8m cars, making it the world’s third largest manufacturer after the USA and Japan. Revenues, which have doubled over the last 10 years, amount to €236bn (2005) or 10.5 per cent of national GDP.

Employment

It is estimated that every seventh job in Germany depends directly or indirectly on the automotive sector. Some 1.4 million people work in upstream and downstream businesses that are dependent on the automotive sector. One mark of the industry’s health is that employment has actually increased by 21 per cent over the past 10 years.

While Western Europe remains the focus of production by German vehicle manufacturers and suppliers, national companies also employ a total of 160,000 people across many of the countries that joined the EU in 2004. Their global dimension is marked by establishments in the USA, Mexico and Canada (at over 300 locations) and in China (now running at 140 plants).

Innovative, competitive and clustered

Automobile manufacturing not only makes enormous contributions to employment and the national gross domestic product, it also performs an invaluable role in technological innovation and human resources development. The industry’s R&D expenditure, €15.6bn in 2004, accounts for more than a third of all Germany’s research spending. Over 85,000 people work in automotive R&D, which amounts to one job in nine in this sector.

Its value can be well-assessed in Baden-Württemberg, home to important clusters of automotive manufacturers and suppliers, whose competitiveness is driven by a very strong local R&D infrastructure. Automotive and engine manufacturers in this area account for sales of €38bn in 67 factories. The region’s automotive companies have a long tradition of technological innovation whose achievements include airbag technology, cruise control, fuel injection systems and anti-blockage braking systems.

The region has some very renowned universities in Germany including Heidelberg, Tübingen and Freiburg, and the more economically and technically-oriented Stuttgart, Karlsruhe and Mannheim universities. Not surprisingly, this higher education system is geared to meeting the needs of the auto industry. Design, development and process engineering are specialities in Esslingen and Konstanz; automotive engineering in Karlsruhe and Esslingen; business administration in the automotive industry in Nürtingen; and automotive design at the technical college of Pforzheim.

Research spending in Baden-Württemberg is above the average of both Germany and the EU. Public and private R&D investment in the EU is 2 per cent of GDP and 2.5 per cent in Germany as a whole. But in Baden-Württemberg, total R&D outlays amount to 3.7 per cent, thanks to a very strong performance by the private sector, led by the auto industry. The fruits of this effort are measured in domestic patent applications – which are nearly double the German average at 112 per 100,000 inhabitants compared to the national average of 58. This comfortably establishes the region as amongst the top 10 leading innovative regions in the EU, according to the European Commission’s European Innovation Scoreboard.

Further north in the country, Lower Saxony is another nucleus of automotive development and production. Here, automotive provides around 128 000 jobs, more than one fourth of all industrial employment. Car and truck manufacturing has led to a turnover of about €67 billion in 2007, representing around 38% of all industrial turnover in the state. The industry is also a chief investor: one out of four Euros that are invested in Lower Saxony’s industry come from automotive.

Another German region notable for its automotive backbone is the Capital Region Berlin-Brandenburg. Considered "the automotive powerhouse at the centre of Europe", the region accommodates more than 150 companies in the sector with around 9,000 employees and numerous research and development institutions. Benefiting from comparatively lower labour costs, the industry has invested over €10bn in this area since reunification, and almost 50 per cent of the top 100 worldwide suppliers are located there.

Bavaria is also a major automotive centre and one of the leading locations in the premium segment worldwide. Bavarian manufacturers Audi and BMW are among the most successful in the world, achieving good results in a challenging international market. Another German powerhouse, the Rhineland, plays host to a diverse range of mid-size and big companies, keen to take advantage of its highly skilled workforce, modern technologies, future-oriented research and successful know-how transfers between science and business.

Saxony - home to five vehicle and engine production plants owned by Volkswagen, Porsche and BMW - is another leading automotive region. With an annual turnover of €360,000 per employee, individual productivity exceeds the national average by 17 per cent.

Vibrant supplier sector

Germany’s supplier industry is as dynamic as it is diverse. Among its biggest suppliers are ThyssenKrupp Technologies, with operations in 240 locations worldwide, 3M Deutschland, which produces over 1,000 different products for the automotive industry, and Michelin Reifenwerke, which has been present in Germany for over a century. There is a high concentration of component suppliers in supporting sectors such as electronics and electrical engineering, information technology, plastics and glass production, metal manufacture and processing, optics and precision mechanics. Given the priority German car designers attach to incorporating high-performance features in their cars, much emphasis is directed towards advanced electronics, innovative measuring tools, just-in-time logistics, turbo-charging systems, light-weight / high-strength engineering materials, catalytic converters, "smart" engineering and intensive robotic assembly, as well as dedicated software development.

Financial services

The strength of manufacturing is matched by a robust financial services business. Today, three out of four new cars are either leased or financed via lending. Manufacturer-owned banks and leasing companies are the main players, holding a 60 per cent share of the market.