Germany’s chancellor Olaf Scholz, languishing in the polls as he faces a snap election of his own making, received some rare good news in recent days – a would-be rival ruled out a putsch and federal bean counters confirmed Europe’s largest economy had managed to avoid a technical recession this year.
Defence minister Boris Pistorius, the country’s most popular politician, according to polls, ended weeks of speculation on Thursday with a three-minute video message saying he was “not available” to run against Scholz for the leadership of their Social Democratic (SPD) party.
“We now have a joint responsibility to bring this debate to an end,” he said, with an eye on the February election, called after Scholz brought about the collapse of a three-way ruling coalition earlier this month with the firing of his finance minister over budget arithmetic. “Because there is a lot at stake.”
On Friday morning the German statistics office revealed the economy had eked out 0.1 per cent growth in the three months to September after a 0.3 per cent decline in the second quarter. While it averted headlines of a technical recession – two successive quarters of contraction – the expansion was half the rate expected by economics for the former industrial powerhouse that has lagged the wider EU since 2021.
Few companies capture its woes better than its biggest private employer: Volkswagen (VW).
VW, with almost 300,000 workers in its home country, including its Porsche and Audi units, has seen its shares plunge more than 28 per cent so far this year as sales in China, its biggest market, have reversed at speed and domestic consumer sentiment has been rattled as the “made in Germany” tag no longer resonates as it once did.
Where German carmakers go so too the economy. Having democratised the combustible engine along with Ford in the last century, VW has been caught off-guard by the electric vehicle (EV) revolution in this one, and botched several EV launches as it races to play catch-up.
VW’s decades-long market leading position in China was usurped last year by local upstart BYD, which stands for Build Your Dreams and has counted Warren Buffett’s Berkshire Hathaway as an investor since 2008.
BYD overtook Elon Musk’s Tesla late last year as the world’s top seller of EV units with its more affordable range. It sped past Tesla in terms of overall revenues in the third quarter of this year for the first time, helped by hybrid sales as well as battery-powered vehicles.
BYD’s market value, at the equivalent of €105 billion, may be a fraction of Tesla’s $1.06 trillion (€1.02 trillion). But it’s a multiple of VW’s €44.6 billion.
It is not alone. Fellow gas-guzzlers BMW and Mercedes-Benz have seen their shares plunge 34 per cent and 18 per cent respectively so far this year amid a series of profit warnings. In short, the German carmakers, once the industry gold standard, are struggling to remain relevant in the age of electrification.
While the sector employs about 800,000 in its home market, it supports more than a further 2 million indirectly across thousands of Mittelstand businesses (SMEs).
The problems of the car sector echo problems elsewhere in the manufacturing sector, which accounts for about a quarter of the economy, and is being weighed down by the results of underinvestment in technology, communications and other infrastructure, crippling red tape, high labour costs, energy prices that rank with Ireland among the highest in the EU – and growing Chinese competition.
Ludwigshafen-based BASF, one of the world’s biggest chemical companies, steelmaking giant ThyssenKrupp and engineering group Bosch are among other industrial giants that have issued downbeat assessments of their prospects in recent weeks.
The country has largely missed the tech boom, with the exception of SAP, the business management software group. Its politicians and regulators would rather forget about Wirecard, a digital payments wunderkind that collapsed four years ago in a fraud scandal.
Back at VW, chief executive Oliver Blume’s self-help plans – including the first German factory closures in the company’s 87-year history – are facing massive challenges. Representatives from the company’s main union, IG Metall, voted on Friday to begin strike action next month as both sides dig in over how to restructure the group.
Thorsten Groeger, leading negotiations for the IG Metall, warned during the week that VW employees – in a country known for a consensual approach to industrial relations – are willing to enter a conflict with the company “the likes of which this republic has not seen for decades”.
Investor sentiment towards VW and German rivals has soured further since Donald Trump was re-elected earlier this month, with promises to impose tariffs on imports into the US. Of the 713,000 vehicles VW sold in US last year, 243,000 were manufactured in Germany, mainly higher-end cars.
It couldn’t come at a worse time for Scholz, now the least popular chancellor in postwar German history, according to polls. His SPD is polling third, at around 15 per cent, in national surveys – less than half the level of support enjoyed by former chancellor Angela Merkel’s Christian Democratic Union (CDU) and three points behind the far-right Alternative for Germany (AfD) party.
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