At Mercedes’s 140th anniversary celebration, the most important exhibit was not a new car but Carl Benz’s 1886 patent application for a “vehicle with gas engine.” It was displayed almost like a national relic — proof that the modern automobile was born in Germany.
That is why the troubles facing Volkswagen, Mercedes and BMW reach far beyond quarterly earnings. Germany’s auto industry represents more than export revenue and hundreds of thousands of jobs. It is one of the foundations of the country’s self-image, built around engineering precision, quality and industrial discipline.
That foundation is now beginning to move. American tariffs are making one major market more difficult, Chinese companies are displacing German brands in another, and the shift to electric vehicles is forcing manufacturers to redesign factories, supply chains and the logic of the car itself.
In Daycom’s assessment, the German auto crisis is first and foremost a crisis of speed. A system that delivered quality, stable employment and predictable profits for decades has become too slow for a market in which a Chinese manufacturer can bring a new model to consumers in 18 months.
Germany’s industrial model was built around long development cycles, complex internal approval and a powerful role for employees in corporate management. In a stable economy, that reduced conflict and allowed companies to plan far into the future.
During a technological rupture, those same strengths become constraints. A modest round of job cuts can be negotiated with unions, local authorities and supervisory boards. A radical overhaul involving factory closures and tens of thousands of positions is much harder to execute.
Volkswagen illustrates the problem most clearly. The company is questioning the future of plants in four German cities, reducing its model range and preparing further workforce cuts. About 50,000 jobs are already expected to disappear by 2030 through retirement and voluntary severance.
Even after those departures, management believes the company may still employ roughly 50,000 more people than it needs. For a group with 657,000 workers worldwide, this is not a minor efficiency drive. It is an attempt to rebuild an organization designed for a different industrial era.
Closing a Volkswagen plant is far more difficult than shutting down an ordinary corporate facility. Employees occupy half the seats on the supervisory board. Two additional shareholder seats belong to the state of Lower Saxony, which holds 20 percent of voting stock and usually sides with labor.
Regional leaders have already made clear that they will not support a plan presenting factory closures as an easy solution. The political logic is obvious: a Volkswagen plant is often more than an employer. It is the economic center of an entire city.
Yet preserving every factory does not make it competitive. If production costs are too high, a model sells poorly and equipment cannot be adapted to an electric platform, social compromise merely postpones the moment when losses become unsustainable.
One proposal is to convert some plants for defense manufacturing. That could preserve jobs, but it would also carry symbolic weight: factories built to make cars surviving only because they are transferred to another industry.
German car production is already moving away from Germany. When companies expand or build new factories, they increasingly choose Hungary, China or Mexico, where costs are lower, regulation is less burdensome and labor markets are more flexible.
The number of cars produced in Germany has fallen 28 percent since 2016. The country now trails China, the United States, Japan and India by a wide margin and could soon be overtaken by South Korea and Mexico.
For a nation that long considered itself the center of the automotive world, this is more than a statistical decline. It is a sign that industrial expertise, investment and future employment are increasingly being created elsewhere.
The most painful blow has come from China. Only a few years ago, German manufacturers saw the country primarily as an enormous source of profit. In 2019, China accounted for 37 percent of Volkswagen sales, while joint ventures delivered strong returns.
That partnership came with a hidden cost. Chinese manufacturers learned to build cars while working alongside Western companies, then moved faster into electric platforms, software and consumer electronics.
The former students became competitors. BAIC, a state-controlled Chinese automaker, owns almost 10 percent of Mercedes and is its largest shareholder. BYD, Geely and other brands are advancing not only in China but across Europe.
In June, Chinese companies sold more cars in Western Europe than Japanese manufacturers for the first time. It was a psychological threshold. China is no longer merely a source of low-cost vehicles or a manufacturing base. It is becoming a center of automotive technology and design.
German companies were late in offering electric vehicles that consumers found compelling. In the first half of the year, Volkswagen sales in China fell 26 percent, Mercedes declined 28 percent and BMW dropped 20 percent. Traditional quality is no longer enough to offset weaker pricing and digital features.
Chinese cars increasingly offer fast charging, rotating displays, advanced software and driver-assistance systems at prices German manufacturers struggle to match. Beijing’s subsidies matter, but blaming the entire problem on state support would be a convenient form of denial.
Part of the gap is self-inflicted. German companies responded too slowly to changing demand, overestimated the power of their brands and often treated the electric vehicle as an updated version of an old product.
Chinese manufacturers approach the car differently: as a digital platform on wheels, where software, interface and update speed matter as much as the engine, suspension or leather inside the cabin.
This is where Germany’s traditional advantage begins to erode. Mercedes may still build an exceptionally refined body and comfortable suspension, but customers now compare that craftsmanship with cars that charge faster, offer better electronics and cost less.
The companies are trying to answer with luxury and spectacle. The latest Mercedes S-Class features a screen nearly the width of the windshield, an illuminated hood ornament and even heated seat belts.
The heated belts became a joke in parts of the German media. They were mocked as a symbol of an industry that remains brilliant at refining details but is not always fast enough to grasp how the entire product is changing.
None of this means Volkswagen, Mercedes or BMW are likely to disappear. They still possess powerful brands, deep engineering traditions, global networks and decades of experience. Chinese competitors also operate in an overcrowded market, often earn little profit and have yet to prove the durability of many of their models.
Survival, however, does not mean preservation of the old scale. German carmakers may remain large and profitable while employing fewer people, operating fewer plants and producing fewer vehicles inside Germany itself.
That possibility is creating political tension. The far-right Alternative for Germany is using the industry’s decline to promise a return to a lost era of manufacturing strength. Its message is gaining ground even in western regions where the party has traditionally been weaker.
The far left is also trying to mobilize frustrated workers, calling for strikes and accusing executives of destroying jobs. The automotive crisis is becoming a contest between political forces offering simple answers to a complex technological transition.
Chancellor Friedrich Merz has called autos the most difficult sector in the German economy and has promised to work with France to defend European manufacturers against Chinese imports.
Tariff protection may buy time, but it cannot create a competitive advantage. If a European vehicle remains more expensive, slower to update and weaker in digital functionality, trade barriers will only delay the loss of market share.
High energy prices, taxes and regulation add to the strain. But deregulation alone will not solve the problem. Germany must find a way to accelerate innovation without destroying the social partnership at the heart of its industrial system.
That is the wider meaning of the crisis. The German model demonstrated that strong unions, high wages, worker participation and export competitiveness could coexist. It is now being tested not by a normal recession, but by technological upheaval.
If companies cannot change faster, pressure on employees and the welfare state will intensify. If they imitate China’s speed through mass layoffs and moving production abroad, the country will lose part of what it is trying to preserve.
The solution lies between those extremes. Germany needs shorter development cycles, stronger software engineering, cheaper energy, large-scale battery production and a realistic plan for converting factories.
Government and industry must also acknowledge an uncomfortable truth: not every plant can be preserved in its current form, and not every job will survive the transition from the combustion engine to the electric platform.
Carl Benz’s patent recalls a moment when Germany created the future. Historical priority, however, does not guarantee permanent leadership. Technological revolutions reward not the countries that invented an industry, but those that understand fastest what it is becoming.
Germany’s car companies will probably survive. The harder question is whether Germany will remain their true industrial center, or whether only the brand will stay German while production, technology and growth move elsewhere.
For the national psyche, that may prove more painful than lower profits. The country that taught the world how to build cars is confronting, perhaps for the first time, the possibility that the future of the industry will no longer be designed in Stuttgart, Wolfsburg or Munich.
