Unit 6: Automobile industry - a ‘driving force’ behind the German economy

Germany’s economic strength has been based on car production to a great extent. The automobile industry is one of the dominating sectors because many economic activities rely on and are linked to automobile production (i.e. tire industry, plastics industry, metal processing). If you include suppliers, car services, garages or retailers, a total of about 5 million employees (1 out of every 7 jobs in Germany) depend on the success of the automobile industry. The automobile industry also involves a large number of product groups, such as the production of trucks, buses, trailers, containers, parts and spare parts. The production of cars will, however, be the focus of this unit. The links to other sectors are also manifested in space. With changing technologies, production concepts, strategies and products, the car industry is often an initiator of innovations in other industries. Its success has been due to the technological competencies of manufacturers, suppliers and their respective employees.

Cars are among the most well-known German products on the world market. Germany began to intensively export cars in the 1950s. The slogan ‘Made in Germany’, initially used by the U.S. occupying forces as a sign to warn customers not to buy German products, became an international symbol for high quality, speed and technology. The Volkswagen (VW) Beetle [1] was one of the first successful cars on the world market. Robust, compact and cheap, several million were produced. Aside from cars, such as the VW Beetle, which are produced in great numbers to meet mass demand, luxury limousines and sports cars also dominate the image of the German car industry. According to employment, sales and export data, the most important German-owned automobile firms are BMW, Daimler-Benz and VW. The strong marketing effect of cars and their tendency to evoke emotion is used by firms in prestige campaigns for their products such as engines constructed for the Formula One (i.e. McLaren-Mercedes) [2].

The German mass production of cars started in the 1920s. Most factories produced a limited number of models. The VW [3] plant was established in 1938 in a rural community in Lower Saxony, together with the construction of a whole town (Wolfsburg). Among the first major producers (the number of small-scale car builders reached 150 in the 1920s) were Mercedes-Benz [4], Opel (since 1927 part of General Motors) and BMW [5]. At the end of World War II, the car industry was virtually destroyed. Rebuilding began in the West, with concentration processes which squeezed-out many small firms. New assembly and components plants (for example, Opel in Bochum) were erected by surviving companies and new firms like Audi [6], which was formed as a result of a merger of firms like DKW, NSU and Horch, were founded. The establishment of new plants took place around major agglomerations or in adjacent rural areas with close ties to resource industries and suppliers. With the growth of the car firms, numerous suppliers opened up or shifted plants into their vicinity. Along with that, employment steadily increased.

Spatial concentrations of the automobile firms and their suppliers can be found in Lower Saxony (Wolfsburg, Hannover, Emden), North Rhine-Westphalia (Cologne, Bochum), Baden-Wurttemberg (Stuttgart, Sindelfingen), Hesse (Baunatal, Rüsselsheim) and Bavaria (Ingolstadt, Regensburg). In East Germany, Kombinate were founded after World War II (Sachsenring and Wartburg). Until 1990, they produced models like the Trabant 601 [7] using designs and technologies of the 1950s. These cars, with their bad driving, high pollution outputs and low comfort, became symbols for the backwardness of the East German economy. Their production was terminated after unification. Since then, some automobile producers have established branch plants in the eastern Länder (i.e. Opel in Eisenach, Volkswagen in Mosel) which are now among the most technologically advanced in Europe.

In 1997, the number of employees in the automobile industry (including the producers of trailers, parts, spare parts and bodies) was 792,000 and 57,500 in western and eastern Germany, respectively. In terms of the number of employees and firms by Länder, Baden-Wurttemberg, Bavaria, Lower Saxony, North Rhine-Westphalia and Hesse were the major centers of automobile production. By means of automation and rationalization since the 1970s, firms have tried to avoid the emerging crisis. Due to increased market success of foreign competitors in Germany, employment in most of the firms has been cut. Overall, western Germany lost 4.8% of its automobile employees between 1984 and 1994. Even new production concepts like Just-in-Time (JIT), which is the delivery of parts to the assembly plants at the exact time they are required, and the use of advanced technologies have not been enough to cope with structural and market changes. Since the mid 1990s, the car industry has been back on the road to success. This has partly been due to increasing exports and high diversification but also drastic job cuts and other restructuring measures which have helped raise sales and profits.

Production concepts, processes and the associated technologies have changed dramatically since the first cars were built. Some 70 years ago, car assembly was primarily manual work. Today, the process of car assembly is almost fully automized. In the old days, firms attached importance to the production of virtually every part in a single plant while today the car producers concentrate on only a few specific production stages (i.e. car assembly). Parts and module production, services and related activities have been shifted to other, specialized firms (outsourcing of production steps). This gives the producer greater flexibility and lowers capacities and costs but also results in increased dependency on suppliers. Since the 1980s, it has become clear that further productivity gains to retain competitiveness could only be possible by outsourcing and securing greater flexibility. Due to this, the entire production system has changed in sectoral and spatial terms.

Today, cars have partially lost their significance as national symbols. Firms, especially small car producers whose markets have been threatened by imports, have diversified their production programs (e.g. by building off-road cars or convertibles). Firms and their production have become more internationalized. Today, the label ‘Made by BMW’ is more important than ‘Made in Germany’. Many German producers are in the process of establishing plants in all important world markets. Often, they produce cars uniquely designed for the national demand (e.g. BMW in Spartanburg in the U.S.). There are strong global concentration and oligopolization tendencies, as exemplified by the merger of Daimler-Benz and Chrysler. Global cooperation is another strategy. Joint ventures and strategic alliances sometimes lead to the cooperative production of components and decreased costs. The German car production system has grown and expanded into Europe and has set up a specific spatial division of labor. Branch plants which were erected on the fringes of Europe (like Spain or Portugal) produce small cars in mass quantities with lower costs whereas the home industry concentrates on middle or upper class cars and research and development. As indicated by its industry association VDA, sales and production in the German automobile industry [8] have grown rapidly in the post-war period. The number of cars produced within one month in 1998 (e.g. 537,000 in September) was almost as high as the annual production in the 1950s (e.g. 630,000 in 1958). German cars still dominate the domestic market. About 4.6 million cars were produced in Germany in 1997. Of these, 2.7 million were exported (almost 60%). Major foreign markets are the U.S., the UK, France, Italy, Belgium and Asia.

Suppliers play an important role in the car industry. In contrast to producers, their variety of products is broad. Today, parts are more complex and technologically advanced in order to cope with the diversified demand and the need for flexibility by car producers. Some suppliers are large and produce various goods for other industries as well. Examples of such large firms are Hella [9], a headlight producer with 9,700 employees in Germany in 1997, Mann + Hummel [10], a filter producer with 4,300 employees, and Eberspaecher [11], a supplier of heating systems with 1,500 employees. Most suppliers are, however, small and medium-sized firms. There are two types of suppliers. The first type of firms produce systems, modules and components in close cooperation and coordination with the final producers. Final producers have, due to a specialization on core competencies, strengthened their competitiveness. They shift tasks like research and development and storage to the suppliers. This makes both sides dependent on each other. The second type of suppliers produce large volumes of standardized low-value parts. These firms are vulnerable in terms of international price competition. They are highly dependent on the strategies and decisions of car producers. In Germany, the introduction of JIT imposed a major threat for suppliers with respect to prices, quality requirements and distribution conditions. There are two types of relationships that car producers have with suppliers. Some buy from various suppliers, often worldwide, but do not stay with any one firm on a regular basis. This serves to erode relations with German suppliers and results in job losses. Others buy specialized, complex components from one or two suppliers, with whom cooperation must be good and close in spatial terms. Some suppliers have even relocated to the JIT plants of car producers to increase efficiency and become part of the production system.

[1] http://www.vwkaefer.de
[2] http://www.mclaren.co.uk
[3] http://www.volkswagen.de/international/english/index.htm
[4] http://www.mercedes.com/e/default.htm
[5] http://www.bmw.de/
[6] http://www.audi.de/index_de.html
[7] http://www.team.net/www/ktud/601_1.html
[8] http://www.vda.de/en/vda/index.html
[9] http://www.hella.com/
[10] http://www.mann-hummel.de/englisch/wir_ueber_uns/wir-ueber-uns.htm
[11] http://www.eberspaecher.com/en/index.htm

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