What Drives the German Car Industry

The German economy has been known to be one of the largest in Europe for a while now and its car industry represents the largest industry sector in Germany with a turnover of 404 billion euros in 2014. When German cars come to mind one would think of Audi, BMW and Mercedes as the top 3 and all these car manufacturers have the perception of their cars having a superior quality of engine and build in comparison to some of its international rivals like Vauxhall for example. With 1 in 5 cars in the world being German we can see that the power of the German car industry is a global one and we can analyse the reasons behind its main success.

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The first reason is to do with labour conditions. German car manufacturers pay almost double the wage of American car manufacturers while still remaining profitable. This incentivises many national and international engineers to come and work. On top of this there is only a single union for employees of German car manufacturers who have regular meetings about employees’ pay and conditions. In doing this it increases transparency and reduces the disagreements between the car manufacturers and employees meaning less strikes (10 times less than France) and happier employees which all in all provides a great environment for employees to work it.

Another reason is the strong education system in Germany which is more vocationally orientated than countries like the UK so a greater proportion of students are more likely to take on national vocational qualifications rather than go to university in Germany. This means that students can get a more hands on experience of learning such as in car manufacturing from an earlier age which makes them, in general, more skilled at doing certain tasks. National vocational qualifications aren’t as respected in the UK hence less students will peruse this route to get into car manufacturing. On top of this in Germany there are many competitions where car manufacturers will provide internships for top international students and this form of advertisement works in Germany’s favour to hire the best employees around the world.

Thirdly German car manufacturers are close to their supplier so the majority of production of parts of cars for example will be located within Germany. This is shown by the fact that Germany contains 21 out of 100 of the top automobile OEM(original equipment manufacturer) suppliers This includes global chemical companies like BASF as well as Bosch and continental ( which produces car tyres). Having these companies so close to the large car manufacturers means that there is a reduced transportation cost and it is easier for communication between the supplier and the car manufacturer to take place.

With German car manufacturers being so successful already it is likely that this success continues if the same policies are kept for the future. The figure below shows that the automotive industry has a considerably larger product turnover than any other sector in Germany. This highlights the importance of having a strong R & D facility when it comes to producing cars to generate a successful business and economy.

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By Moiz Paracha