German carmakers have 50:50 chance of facing Detroit's fate, Volkswagen CEO says

By Edward Taylor

FRANKFURT (Reuters) - German carmakers only have a 50 percent chance of surviving as leading players in the auto industry unless they transform their businesses to meet new regulations and adapt supply chains, Volkswagen's chief executive said on Tuesday.

Car manufacturers have complained increasingly loudly about new regulations, including bans on older diesel vehicles in German cities and broader EU measures to cut car emissions, saying they will hurt Europe's car industry and cost jobs.

"If you look at the former bastions of the auto industry like Detroit, Oxford-Cowley or Turin, you understand what happens to cities when once powerful corporations and leading industries falter," CEO Herbert Diess told an auto suppliers conference in Wolfsburg, VW's manufacturing base.

Tougher rules could push some carmakers out of business due to the pace of reforms required to shift production to electric cars and to tackle new geopolitical threats, he said.

"From today's point of view the chances are perhaps 50-50 that the German auto industry will still belong among the global elite in 10 years' time," he said, referring to leading players Volkswagen Group, BMW and Daimler.

European Union lawmakers have agreed to seek a 35 percent cut in car emissions by 2030, a higher level than Germany had sought, after a U.N. report called for dramatic steps to slow global warming.

Germany's BMW, Audi, Mercedes brands command around 90 percent market share in the premium auto segment. An intensifying push to cut emissions hurts high horsepower vehicles and therefore German brands in particular.

"We are all used to the fact that we have flourishing industrial metropolises around the central manufacturing plants of German carmakers and their suppliers, places where people like to live and work, but that's not guaranteed for eternity," Diess said.

OVERHAULING BUSINESS

To cut average fleet emissions of carbon dioxide in Europe by 30 percent by 2030, Volkswagen needed to raise its share of electric vehicles to 30 percent of new car sales, Diess said.

A reduction of 40 percent CO2 fleet emissions would require around half of the new cars sold to be fully electric.

The push to cut vehicle carbon dioxide (CO2) emissions, the main greenhouse gas blamed for global warming, would ultimately lead to a rise in CO2 pollution in Germany, given the country's dependence on generating electricity from brown coal, he said.

The shift from combustion engines to electric cars would also cost 14,000 jobs at VW by 2020, Diess said, requiring an overhaul of the carmaker's in-house components business.

"It is clear to us all that the structural shift will lead to fewer auto industry jobs in Germany. The question is, how quickly do we need to implement this structural change," he said.

VW is overhauling its in-house components division, which eats up the lions share of the 170 billion euros ($197 billion)spent on procurement, develops and builds car parts at 56 sites across the globe, and employs about 80,000 people.

"From Jan. 1 onward, Volkswagen components will act as an economically independent entity," Diess said.

Each of the 56 plants would be free to evaluate partnerships and even to build components for other carmakers, Diess said.

($1 = 0.8630 euros)

(Reporting by Edward Taylor; Editing by Maria Sheahan and Edmund Blair)