Auto Slowdown Threatens German Economy

Production by Germany’s automotive sector shrank 12% in the first half of 2019, threatening the health of the country’s economy, the Financial Times reports.

Germany is enjoying record-low unemployment, and most of the economy remains relatively healthy. But business confidence has turned negative across all sectors, except construction. FT notes that the country’s central bank said last week that Germany’s economy probably shrank in April-June.

Analysts predict trouble through the remainder of the year for Germany’s Big Three carmakers: BMW, Daimler and Volkswagen.  FT says the sector employs 820,000 residents and contributes about 5% of the country’s gross domestic product.

Four in five cars built in Germany are exported, but orders are declining. At the same time, the critical Chinese market for cars is down 14% so far this year. Eurostat says the European Union’s economy grew only 0.2% in the second quarter, half the pace generated in January-March.

Analysts point out that the German auto industry’s woes aren’t just about sales volume. Carmakers also are making huge investments in electric vehicles, connectivity and autonomous-driving technology.

Those investments, coupled with falling revenue, have triggered more cost-cutting initiatives, including those that squeeze suppliers already reeling from declining production orders.