For decades, automobile manufacturing has been Germany's industrial crown jewel, a potent symbol of the country's glorious post-war miracle. Its "Big Three" brands, Volkswagen, Mercedes-Benz and BMW, have long been praised for their performance, innovation and precision engineering.
But today the German automotive industry is in trouble.
With a faltering economy a key theme in this month's federal election, how can it get back on the road to recovery?
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When you arrive by train in Wolfsburg, Lower Saxony, the first thing you see is the Volkswagen factory.
Its huge facade, adorned with a giant logo and surrounded by four tall chimneys, dominates one bank of the canal that runs through the city.
The complex covers 6,5 square kilometers next to the Autostadt, a kind of theme park dedicated to the automobile and Volkswagen, Europe's largest manufacturer.
Not far from there is the Volkswagen Arena, a sports stadium.
Wolfsburg is Germany's answer to the 20th century Detroit - not so much a city as a car factory with a town that grew up around it.
The plant employs some 60.000 people from the entire region, while the city itself has a population of around 125.000.
Locals say that even if you don't work at the factory itself, chances are that most of your friends do, along with half of your school class.
"Wolfsburg and Volkswagen - they're kind of synonymous," explains Dieter Landenberger, in-house historian for the Volkswagen Group, as he gazes fondly at an early model of the Beetle.
It is one of a series of beautifully restored classic cars in the Zeithaus – a huge glass-fronted museum in the Autostadt dedicated to icons of the automotive industry.
"We are proud of our drive," he says.
"He is a symbol of that period in the 1950s when Germany had to convert and rebuild after the war. He was a kind of driving force behind the German economic miracle."
Today, however, the drive has also become a symbol of the major problems plaguing the German automotive industry as a whole.
The Wolfsburg factory can produce 870.000 cars a year.
But in 2023, it was making 490.000, according to the German Economic Institute in Cologne.
And in Germany, she was far from the only one.
Car factories across the country are operating far below maximum capacity.
The number of cars produced in Germany has fallen from 5,65 million in 2017 to 4,1 million in 2023, according to the International Organization of Motor Vehicle Manufacturers.
All of this is very important as the German public prepares to go to the polls on February 23rd.
The automotive industry is not only a source of national pride; it is also a significant driver of national wealth.
Disagreements over how to address the country's economic woes were a factor in the coalition government's collapse in November.
Whoever comes to power after the election will inevitably need to have a plan to revive the economy – and getting the auto industry back on track is likely to play an important role.
Car production accounts for about a fifth of the country's manufacturing output, and if the supply chain is taken into account, it generates about 6 percent of GDP, according to Kapital Economics.
The industry directly employs around 780.000 people – and provides millions of other jobs.
And it's not just production that's declining.
Sales of cars made in Germany are much lower than they were a few years ago.
Between 2017 and 2023, Volkswagen's sales fell from 10,7 million to 9,2 million, while BMW's sales fell from 2,46 to 2,25 million and Mercedes's from 2,3 million to 2,04 million in the same period, the companies' reports show.
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All three big brands saw their pre-tax profits fall by around a third in the first nine months of 2024, and each warned that their earnings for the year as a whole would be lower than previously forecast.
The development of electric cars has sucked up huge investments, but the market for them has not expanded as quickly as expected, while foreign competitors are getting stronger.
America's threat to introduce sanctions also poses a potential danger.
"There are so many crises, a whole world of crises."
"As soon as one crisis is over, another one immediately follows," says Simon Schutz, spokesman for the Federation of the German Automotive Industry (VDA).
Car sales across Europe have been declining since 2017, according to Francisca Palmas, senior European economist at Kapital Economics.
"It has recovered a bit recently, but it is still about 15-20 percent lower than it was at its peak in 2017," she says.
"This is partly due to factors such as the pandemic and the energy crisis."
"But cars also last longer, and people already have a lot of cars in Europe. And that's why demand has been weak."
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Electrical substances
The second key factor is the aforementioned switch to electric cars.
Since the 2015 diesel emissions scandal in which Volkswagen was shown to have rigged emissions tests in the US, the industry has been undergoing a technological revolution.
With the EU and European governments firmly committed to phasing out petrol and diesel cars in the next decade, manufacturers have had little choice but to invest tens, and collectively hundreds, of billions of euros in developing electric models and building new production lines.
However, while electric cars do indeed currently account for a significant proportion of all cars sold - 13,6 percent in the EU and 19,6 percent in the UK last year, for example - their market share is not growing as fast as expected.
And in Germany itself, the abrupt end of generous subsidies for electric car buyers at the end of 2023 actually contributed to a dramatic 27 percent drop in sales of all electric cars in the country last year, further making life miserable for German companies in their home market.
"The decision to abruptly end subsidies - that was a very bad thing, because it damaged trust among customers," says Simon Schutz of the VDA.
"The transition from combustion engines to electric mobility is a very large process.
"We are investing billions in rebuilding all the factories. And that takes time, that is undeniable."
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Expensive job
While all this was happening, German manufacturers were grappling with another serious problem.
Just doing business in Germany, running factories here and employing hundreds of thousands of people, is very expensive.
Workers in the automotive sector have traditionally received generous wages and benefits thanks to agreements concluded between unions and management.
According to Kapital Economics, in 2023 the average monthly basic salary in the German automotive industry was around €5,300, compared to an average of €4.300 across the German economy as a whole.
For years, this approach has provided German companies with certain advantages, for example in avoiding industrial unrest and attracting and retaining talent among staff.
However, this has also led to German car manufacturers having the highest labor costs in the world industry.
This averaged 2023 euros per hour in 62, compared to 29 euros in Spain and 20 euros in Portugal, according to VDA data.
The situation in Germany's domestic automotive industry has become more acute following the Russian invasion of Ukraine.
This has drained Germany's once abundant supplies of cheap Russian gas, at the same time as the country has been working to phase out nuclear power.
The result was a sharp jump in energy prices.
Although they have since eased, energy costs for industrial users in Germany remain very high by international standards.
"Energy prices here are three to five times higher than in the US or China - much higher than for our main competitors," says Schutz.
And this is felt throughout the industry, not just among the car manufacturers themselves.
"From the steel mills ThyssenKrupp and Salzgitter, which produce sheet metal panels for later conversion into doors and hoods, to the manufacturers of smaller components used in the powertrain, costs have exploded as a result of high energy prices," says Matthias Schmidt of Schmidt Automotive Research.
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'A very big shock'
Last year, these pressures culminated.
At Volkswagen, which has 45 percent of its global workforce in Germany, executives have finally decided that radical moves are necessary to cut costs.
"It was a very big shock," IG Metal union spokesman Stefan Schmidt tells me over a cup of coffee near the Volkswagen factory in Wolfsburg.
"The company has not announced anything publicly."
It was left to Daniela Cavallo, head of Volkswagen's powerful works council and the main employee representative, to break the news.
"They held a big meeting outside the factory gates. Thousands of workers, and not a fly was heard," Schmidt says.
"They were stunned. Thousands of people, and complete silence."
What Volkswagen was proposing was unheard of at the time.
Union representatives came to the meeting expecting to negotiate an annual salary increase.
They asked for a seven percent increase.
Instead, they were told that the company wanted them to accept a 10 percent pay cut.
And the worst was yet to come.
The company said it may have to close up to three factories in Germany alone - and scrap a job protection agreement that has been in place for decades.
Arne Maiswinkel, Volkswagen's chief negotiator, said at the time that the situation they faced in Germany was "very serious" and that "Volkswagen will only be able to get out of this crisis if we secure the company in the future from rising costs and massively increasing competition."
Volkswagen has never closed a single German factory in its 87-year history.
Faced with fierce resistance from unions and politicians, and after brief but damaging "warning strikes" by union workers, he eventually abandoned the idea.
But the mere fact that the idea was put forward in public caused seismic tremors throughout the sector.
Meanwhile, the workforce has agreed to painful pay and bonus cuts, and Volkswagen has said it will cut more than 35.000 jobs by the end of the decade, albeit in a "socially responsible manner" that avoids mandatory technical redundancies.
Less conspicuously, Mercedes-Benz also launched cost-cutting initiatives last year, aiming to save several billion euros annually – although mandatory technical redundancies in the German workforce are extremely unlikely, as the employment guarantee agreement effectively rules them out until 2030.
Meanwhile, Ford, which operates two factories in Germany, recently announced plans to cut 2.800 jobs in the country.
Not all of the German auto industry's problems were limited to Germany.
Due to the saturation of the European market, manufacturers from the Old Continent have been looking for growth elsewhere for decades.
The influence of China
One of the most lucrative markets was China, where for a time a growing middle class had a seemingly insatiable appetite for luxury European vehicles.
Volkswagen, Mercedes-Benz, and BMW have partnered with local companies, opening factories in China itself to meet local demand.
But now that source of growth is starting to dry up.
The Big Three have recently experienced a sales decline - in 2023, Volkswagen's sales in China fell by 9,5 percent year-on-year, Mercedes' by 7 percent, and BMW's by 13,4 percent.
Their combined share of the Chinese market also fell to 18,7 percent, from a peak of 26,2 percent in 2019.
This appears to be a consequence of the stagnation of the Chinese economy, a decline in interest in expensive cars with foreign badges, and the rapid growth of local brands, especially in the electric car market.
"Not so long ago, Western brands represented quality and trust," explains Mark Rainford, founder of the website Inside China Auto.
However, he says, since then the reputation and appeal of Chinese brands has improved beyond recognition.
All of the Big Three say that trends in China have had a significant impact on their earnings.
Chinese brands are also trying to increase their share of the European market, helped by much lower operating costs than established rivals, both because wages are lower in China and because, as pure electric vehicle companies, they don't have the same legacy costs as manufacturers making the switch from petrol and diesel to battery-powered cars.
According to the European Commission, Chinese brands also benefit from hefty government subsidies, which allow them to sell cars at artificially low prices.
In October, the EU imposed additional tariffs on imports of Chinese electric cars, in an attempt to create a much more level playing field.
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Trade wars?
German companies opposed the EU tariffs because they feared that Chinese retaliation could affect their own exports.
Now they also face the threat of new protectionist measures introduced by the Trump administration, including possible tariffs on cars coming from the EU.
For an industry that relies heavily on exports, the rise of protectionism poses a growing threat.
"We know that trade wars only produce losers on both sides. Tariffs will cost wealth, cost development and cost jobs," says Simon Schutz of the VDA.
While some of the pressures facing German car companies were unforeseen, there was still an element of complacency, says analyst Matthias Schmidt: "They were aware that there were structural problems, but they were blinded by cheap Russian gas," he says.
“Expansion into China and large profits sent back to Europe masked problems with high labor costs, giving unions a wild card they could always play.
"Germany was practically the export-driving market, and once those markets get sick, it's Germany that gets cold, and that's exactly what happened here."
A high-stakes challenge
So can German automakers revive their fortunes?
This is a key issue for manufacturers, for their supply networks, and for the country as a whole.
"Germany's problem is that we are not competitive," says Dr. Ferdinand Dudenhofer, head of the Bochum Automotive Research Center.
"Not only in terms of costs, but also in terms of new technologies that will rule the world in the future."
He believes that China has become the center of gravity for innovation in areas such as digitalization and battery technology.
"The solution for automakers and for suppliers, in my opinion, is to move factories abroad," he says.
Simon Šuc is more optimistic about this issue.
He thinks the industry can flourish, but only if it gets the support it needs from the government after the elections later this month.
"Our automotive industry will be a world leader, I'm sure of that," he says.
"The only question is, where will the jobs be in the future?"
"Will it be in Germany, because we can make cars here, or will our companies move somewhere else?"
For union representative Stefan Schmidt, however, the solution is to return to Germany's traditional industrial values.
"We need to become leaders in innovation and technology again," he says.
"Then we can maintain high wages and good conditions for workers."
He believes the path forward for the new government is very clear: "Invest, invest, invest. In infrastructure, in technology, in green energy and in education."
For tens of thousands of workers in Wolfsburg and other German "automobile cities" such as Ingolstadt, Weissach, Munich, Stuttgart and Zwickau, the stakes could not be higher.
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