Germany's auto industry has to rethink its politics as Merkel leaves office

At the last Frankfurt car show, Chancellor Angela Merkel toured the Porsche stand, where she was invited to sit behind the wheel of the new Taycan electric model. She politely declined, sidestepping the pitfall of publicly endorsing an extravagant sports car. 

The signature Merkel maneuver -- a rapid risk review followed by a wry response -- underscored her complicated relationship with a key industry that for the longest time has relied on the political patronage from the country’s chancellors. 

As Merkel prepares to leave office after 16 years, automotive executives are left wondering what to expect from her successor, less than three weeks before general elections that remain a wide-open contest. Will it be detachment or endorsement? Maybe even open confrontation with a environmentally-minded government pushing carmakers and their suppliers to embrace change more emphatically or risk being sidelined.

Merkel makes her final visit to a car show today before she leaves office following the Sept. 26 vote. In the Munich halls that she will tour, the air of change is palpable. There’s a vast space dedicated to bicycles, electric vehicles are the norm rather than exotic experiments, and climate neutrality has eclipsed horse power as the exhibitors’ buzz words. It sends a message to any politician seeking to play a role in the next government that there’s a fine line between supporting a key industry and protecting the environment.

After a relatively slow start, carmakers from BMW AG to Daimler AG to Volkswagen AG are now embracing the electric future head-on. At the show, BMW announced it’s practically doubling its battery-cell order as demand for electric cars booms; Daimler showed off its new EQE sedan that will take its 40 billion-euro ($47.5 billion) battery push to a wider clientele, while Volkswagen unveiled the design for a small electric car targeting urban buyers.

Not Afraid
 

“There are a lot of things happening at the same time: regionalization, digitization, a number of different drive trains,” said BMW CEO Oliver Zipse, referring to combustion and electric engines. “BMW is able to handle complexity. The ability to handle complexity is the cornerstone of our strategy. We’re not afraid of the future.”

Oliver Zipse, chief executive officer of Bayerische Motoren Werke AG (BMW), speaks during a news conference on the opening day of the IAA Frankfurt Motor Show in Frankfurt, Germany, on Tuesday

Germany is set to have the highest adoption rate of electric vehicles among European countries, with more than 90% of new car sales forecast to be electric by 2040, according to BloombergNEF’s Long-Term Electric Vehicle Outlook. Germany’s EV market is projected to reach 3.4 million annual sales by then, thanks to high purchasing power, policy support, and a broad offering from domestic automakers.. 

For Robert Bosch AG, the world’s largest car-parts supplier, the next government’s focus should be on existing goals rather than on establishing new ones. 

“Stop formulating new targets, and instead implement the first steps in order to show how these targets can be reached, because they are already very, very ambitious,” CEO Volkmar Denner said in an interview at the show. 

 

Besides, greener mobility requires huge outlays, which is why the automotive sector will continue to need support to grow, he said. 

Economic Prosperity
 

For now though, the car industry, a cornerstone of Germany’s postwar rise as a global manufacturing powerhouse, remains at a crossroads. Gasoline prices have spiked in recent months, pushing up the cost of driving. Inner-city congestion has intensified as coronavirus-wary commuters switched from public transport to their personal vehicles. And electric charging infrastructure remains patchy at best, discouraging consumers from making the switch. 

The broad political debate surrounding this year’s election has been about climate protection and future technologies. That pledge was brought into sharp contrast with the deadly floodings in western Germany in July as well as other natural disasters around the world that have brought the real threat of global warming to public attention. 

Daimler CEO Ola Kaellenius expects the next government to pursue a “combination of a high ambition in climate protection and a similarly high ambition in economic prosperity.” 

A Green Party election campaign poster featuring Robert Habeck, co-leader of the Green Party, and Annalena Baerbock, chancellor candidate for the Green Party, in Berlin, Germany

The government’s uneasy relationship with the industry on display last year when the state unveiled a massive 130 billion-euro recovery package. Unlike in the aftermath of the financial crisis, when the powerful automotive sector received financial aid in the form of purchase incentives, no money was allocated to combustion-engine vehicles this time. Instead, buyers of battery-powered cars got bigger subsidies.

Judging by current polls, the CDU party that Merkel has led for close to two decades risks a stinging defeat at the end of the month and could be ejected from power for the first time in 16 years. There’s also a good chance that the Green Party will be part of the next government. 

That stands to complicate the relationship with the car industry that’s long been regarded as antiquated by the party’s young, eco-conscious and urban voters. Annalena Baerbock, the Green’s chancellor candidate, has suggested the state should subsidize hulking load-bearing bicycles rather than industries that are past their prime.

In response, the main headline in Germany’s bestselling tabloid Bild-Zeitung screamed “Fear For Our Car” this weekend, lamenting that a mainstay of the country’s freedom and prosperity is under threat from high fuel prices and political meddling.

Nation of Engineers
 

“Regardless of which constellation the next government will have, climate change must play a role and prosperity must play a role,” Audi CEO Markus Duesmann told reporters ahead of the Munich show.

Either way, the scale of disruption will be significant, McKinsey said in a report ahead of the show. Research institutes and labor unions like IG Metall estimate more than 100,000 jobs will change in the German automotive industry by 2030. That’s as much as 10 times the scale of jobs compared with the phase-out of coal power that Germany announced for 2038, McKinsey said.

Some political parties are advocating a gradual move toward new technologies rather than a rapid abolition of the combustion engine. Speaking in a Bloomberg webinar last week, the head of the FDP liberal party, Christian Lindner, said the the combustion engine still has a future that shouldn’t be dismissed outright. 

“We’re a nation of engineers and should develop superior technologies,” Lindner said. “A political approach that only focuses on bans and infringes upon the individual way of life cannot be a model for the world.”