German economy to hit speedbump as car industry ‘critical’

Brexit: German car industry could face consequences says MEP

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The Ifo Institute, based in Munich, has warned confidence has slashed to a six-month low following prolonged shortages in September, leading to the world’s largest car industry to plunge. Ifo said: “The situation in Germany remains critical: order books fell from 17.1 points in August to 5.3 points [in September]. In July, the order backlog was still rated at a healthy 52.5 points.

“Demand is down for the first time since May 2020: the figure fell from 1.7 points to minus 15.7 points. Along the supply chain, companies rated the stock of finished goods as too large.”

A global supply and production issue surrounding semiconductors vital for the production of modern high-tech vehicles is largely to blame.

Indicators have shown that confidence in the industry has plummeted from 32 points, to just 13.2.

The gauge measures the difference between car firms optimism and pessimism surrounding the production and distribution market. It was at a three year high of 50 points as recently as July.

The big three German car makers, Daimler owner Mercedes Benz, Volkswagen and BMW have all been forced to cut back in production as the chip shortage means vehicles can not be completed to the usual high specification.

Adding to the confidence indicators on production and distribution, tracking of orders awaiting production also fell from 17.1 points to a mere 5.3 in September as the reality of the shortage kicked in.

Director of Ifo Oliver Falck said the industry was “most seriously affected by supply bottlenecks for intermediate products.”

There does however appear to be a light at the end of the tunnel in the form of exports.

Mr Falck told The Telegraph: “This shouldn’t hide the fact that the uncertainty of many consumers in China, due to the crisis of the real estate developer Evergrande, is weighing the mood of German carmakers, who now produce more cars in China than in Germany.”

Car makers from around the globe fear that the shortage of semiconductor chips could last well into 2023 following the impact of the COVID-19 pandemic on the supply chain.

Car production in the UK was down 27 percent year on year in April as a combination of shortages and lockdowns took their toll on the British assembly plants, according to a report by the Society of Motor Manufacturers and Traders.

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The automotive industry gross production value in Germany accounts for roughly 498 billion euros in total sales.

In 2019, around 3.49 million vehicles were exported, with around 217bn euros to the European Union.

The industry employs around 809,000 people within Germany, and accounts for around 10 percent of the total national GDP.

With a new coalition government about to replace outgoing Chancellor Angela Merkel, all eyes will be on whether talks between the Greens and the FDP will temper some of the Greens’ policies towards vehicle emissions.

Matthias Schmidt, a Berlin based auto-industry analyst, told Politico: “Generally, the car industry is quite pleased that it’s not going to be red-red-green, because the FDP will put the brakes on the Greens plan for 130-kilometer-per-hour speed limits on highways.”

Andreas Scheuer, outgoing Transport Minister, is keen on protecting the industry known by some as the back-bone of the German economy, having earlier told Bild newspaper that the combustion engine with synthetic fuels will be “the engine for innovation” in Germany.

With Brexit in place, the British market has also impacted the German export industry, with the UK falling outside of the top ten trading partners with Germany, which in part are due to trade barriers adding a further £600 million in costs to UK importers, with German vehicles heavily included in the figure.

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