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Car troubles

December 3, 2009

Long before the New Year has had a chance to speak for itself, the German Association of the Automotive Industry (VDA) has spoken for it. 2010, it says, will be a troubling time for German car manufacturers.

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Cars aboard a ship
Exporting cars is a pricey businessImage: AP

One of the problems is Berlin's decision not to extend the car-scrapping bonus scheme which has helped to keep the industry afloat in the current economic climate. It pushed the number of new registrations up to 3.6 million, thereby absorbing some of the shock from falling exports.

President of the VDA, Matthias Wissmann, said that without the increase in domestic demand, German car manufacturers and dealers would have experienced a slump similar to the one experienced in the export market.

"As it is, we are only looking at an 11 percent drop in domestic production," Wissmann said.

Foreign perspectives

A giant claw lifts a scrapped car into the air
New cars for old helped the German industry stay alive in 2009Image: picture-alliance/ dpa

The effects of the controversial bonus scheme on 2009 sales are impossible to ignore. Not only for domestic producers, but also for overseas manufacturers, who saw their overall share in the German market climb from 35 to 41 percent. But that success will be short-lived, according to Wissmann.

"For some import brands the wrecking bonus was a windfall that saw their German sales grow by double or even triple-digit rates. But now the program's over they're experiencing a rather icy headwind," he said.

In order to compensate for the difficulties ahead, German car-makers are looking longer and harder beyond their own borders. On Wednesday, Daimler announced plans to shift 20 percent of the production of its C-Class models to the US and a further 10 percent to both China and South Africa.

Employee representatives from the works council say the changes, due to be implemented by 2014, could end up costing the company's largest plant some 3,000 jobs. But in a statement, Mercedes-Benz chief executive Dieter Zetsche described the move as "essential for strategic and operational reasons" as it would allow the company to remain competitive and "fully utilize future growth opportunities."

Zetsche went on to say that Germany would remain "the heart of our production network," but his words were of little solace for employees. A works council spokesman described the decision as "a bad decision with fatal consequences."

Do or die

The grille of a Mercedes C-Class car
Daimler is shipping large parts of its production abroadImage: AP

But is it really? Daimler is certainly not alone in its efforts to enhance its prospects by shipping large parts of its production oversees. Over the course of this year Volkswagen has begun construction of a new plant in the US and invested heavily in China, Brazil and Mexico.

Critics see the globalization efforts as tampering with the auto industry's 'made in Germany' seal of quality. But it doesn't seem to be hurting business. While in the early 1990s German companies made just 1.5 million cars at foreign production facilities, that figure has now risen to 4.6 million - almost level with the number of cars made domestically.

Wissmann says the trend is likely to continue, particularly in emerging economies like China and India, where he predicts a significant rise in sales in the coming year.

tkw/AFP/AP
Editor: Sam Edmonds