A Fading Legacy: Why the Nation's Auto Industry is in Crisis

Introduction

Over the decades, Germany has been leading the car industry with their precision technology, highly skilled labour and legacy of innovation. What was once a post war miracle has now become a source of national pride in Germany. Renowned German brands like Volkswagen, BMW and Mercedes led the revolution in the car industry, transforming the industry and the way cars are built today. Now the German car industry is struggling to float, but why is that and what are the implications on society as a result of their gradual decline?

The History and Legacy

Post world war two, companies like BMW, Volkswagen, and Mercedes-Benz (previously called Daimler-Benz) were heavily bombed and their main plants were left in ruins (Bell 2025). At a time of distress, where there was no hope for the industry, Volkswagen was reborn. In May 1945, the British Army placed an order for 20,000 vehicles because Major Ivan Hirst of the British Army recognised the company's potential and the reliability of their cars. The production of these cars kept Volkswagen from being dismantled and in December 1945 Hirt and a German manager, Heinrich Nordhoff, resumed civil production. A country in disarray finally saw hope; an economical miracle. Volkswagen began exporting which helped them grow rapidly and tackle new markets; the Beetle, a car model, became widely loved across Europe and the US for its reliability and affordability. This exporting model helped bring in foreign currency into the country and reformed Germany’s image from war struck to an industrial powerhouse. 

BMW also re-established themselves post the war, focusing on innovation and luxury. Engineer Béla Barényi, an employee of BMW, patented his idea of a crumple zone in cars ensuring a safer ride. BMW became pioneers in the industry, best known for their innovation, safety and high quality designs. Their models reshaped the industry, and have influenced car designs today (PLC Auction 2025).

These companies are examples of how influential the German car industry was in the evolution of automobiles worldwide. Companies that were once pioneers of technology, innovation and luxury are now slowly fading away.

The Problem Today

Wolfsberg in Germany is an automobile theme park, best known for housing the headquarters of Volkswagen. The factory stands as a representation of how Germany had to reinvent itself despite all the challenges they faced post the war. Germans take great pride in the car industry which they built from the ground up, and it acts as a symbol of national honour.

However, today the factory also represents the many issues faced by the automobile industry in Germany. The high costs, decreased demand and increased competition makes it hard for these firms that once used to thrive to survive in a rapidly changing market. 

One factor making it harder to operate in this market is the increased costs. The Volkswagen factory is able to produce 870,000 cars a year but by 2023 they are only producing 490,000 cars (Leggett 2025) . Operating below maximum capacity is a problem many automobile firms in Germany are facing, which resulted in a 1.55M (Leggett 2025), decline in car production throughout the country.  The underproduction of cars is a result of the EU’s ambitious goal of completely transitioning to EV vehicles by 2035. Their aim to phase out internal combustion engines (ICE) meant a significant disadvantage for these German firms because over the years, these companies have perfected their production to build ICE vehicles. This means that the factories were not suited to pivot into the production of EV vehicles causing factor immobility (Dietz 2025). This requires the companies to restructure their production process and change their factories in order to accommodate the production of EVs which is a capital intensive process that requires large investments. As the market is forced towards EV production, the highly efficient ICE production lines are underutilized or shut down. While the new EV lines are getting installed in replacement, they aren’t ready to make up for the lost efficiency of closing down ICE production lines that have undergone constant refinement over decades, making them near perfect. This loss of efficiency and remodeling the company is an expensive endeavor which increases costs for the company. 

In 2023 the German government withdrew subsidies for electric car buyers (Leggett 2025). This contributed to a 27% fall in sales in the home market for EVs, making it very expensive for consumers.  As a result this further contributed to the underproduction of EV cars, as there was less demand for these goods, as locals opted for more affordable Chinese made EVs instead. Because the German cars were demanded less, their manufacturing decreased further contributing to the underproduction of cars. While the increased prices is a significant factor contributing to the decline of the car industry in Germany, the effects of demand is also a key factor, though it lies beyond the essay's focus. 

Another factor contributing to the crisis faced by the German automakers is the increasing competition in the market. Rival Chinese firms are creating more innovative models and taking over their market share, due to decreased demand for German cars. The German automotive industry grew rapidly over the years due to their export model. While they were prominent around the world, China was one of their main and most profitable markets. But now Chinese companies like BYD, are creating more innovative and affordable EVs leading to a loss in market share in the Chinese market and globally. When the German car companies have less demand for their cars, they have to export less and overall become less profitable.

Moreover, it has become extremely expensive to build a car in Germany. Ever since the Russia- Ukraine war which led to the cutoff of Russian gas, it has caused industrial energy prices to surge dramatically (Katanich 2025), making it very expensive to run a factory. In addition, Germany is known for their strong unions and high wages for auto-workers. While this is beneficial from the perspective of a worker, it costs these companies a fortune to employ skilled labour. 

The Implication on Society

The German companies are faced by many obstacles that are preventing them from flourishing and making it hard to survive. These companies are faced by extremely high costs and in order to stay in business, they had to make some changes around the company. Volkswagen have made workers redundant and there have been wage cuts in order to keep up with the ever increasing costs incurred by the firms (Leggett 2025). An industry that was the embodiment of the European social model, is no longer able to keep up with rising costs. Social stability is decreasing in areas such as Wolfsberg, where the entire city revolves around the Volkswagen plant. Including other German car manufacturers, these companies employ about 7% (Kofner 2021) of all the jobs in Germany, in this industry alone. The German car industry contributes about 6% to the country’s GDP, and with the companies struggling, the country’s economy is at risk. This reinforces how important the industry is to the wellbeing of the German economy and people. What was once an economic miracle is now causing economic distress amongst the people because of their inability to keep up with the changing markets that they once used to dominate. 

The EU’s regulation to transition into EV production only catalyzed these effects on the industry. The regulations that were put in place to ensure a healthier environment and reduced carbon emission are now having an impact on the workers in these industries. 

Conclusion 

In conclusion, the German car industry is unable to cope with the changing market. With increased regulations that forces them to pivot into production of EVs, the German companies aren’t ready for the EV change. This has caused an underutilisation of their factories and therefore they are not working at their maximum capacity, which is a contributing factor to their high costs and decreased productivity in their plants. The automotive industry in Germany is also seeing increased competition from EV manufacturers in China like BYD, which is causing them to lose market share in important foreign markets (like China or USA) and its home market (Europe), because these firms are dominating the field with the latest technology, innovation and better prices. For an industry that is export centric, increased competition is reducing the amount they are producing, overall affecting their profitability as demand for these German engineered cars has decreased. Moreover, Germany’s high labour costs and operating costs are not making things easier; they are facing costs that are constantly increasing, making it hard to stay profitable. Overall, the German automotive industry as a whole is struggling to keep up with increasing cost and decreasing demand, and therefore they have had to make changes to their operations in order to salvage what is left of their incredible legacy. Workers have been made redundant, and wage cuts have been implemented in attempts to reduce costs and stay competitive in the market. For a nation that takes pride in the industry, after it rebuilt itself post the war, they may be letting them down as the industry slowly fades away.

References

1. Bell, John. 2025. “Automotive industry - Post-WWII Europe.” Britannica. https://www.britannica.com/technology/automotive-industry/Europe-after-World-War-II.

2. PLC Auction. 2025. “German car brands: overview, history, emblems – PLC Auction.” PLC Auction. https://plc.auction/posts/german-car-brands-overview-history-emblems.

3. Leggett, Theo. 2025. “Germany's car industry crisis - this is what may fix it.” BBC, February 11, 2025. https://www.bbc.com/news/articles/cz6pzwj6qq7o.

4. Leggett, Theo. 2025. “Germany's car industry crisis - this is what may fix it.” BBC, February 11, 2025. https://www.bbc.com/news/articles/cz6pzwj6qq7o.

5. Dietz, Christian. 2025. “Navigating the EV transition.” Navigating the EV transition. https://www.ceps.eu/ceps-publications/navigating-the-ev-transition/.

6. Leggett, Theo. 2025. “Germany's car industry crisis - this is what may fix it.” BBC, February 11, 2025. https://www.bbc.com/news/articles/cz6pzwj6qq7o.

7. Katanich, Doloresz. 2025. “European gas prices soar after Russian gas flow via Ukraine stops.” Euronews.com. https://www.euronews.com/business/2025/01/02/european-gas-prices-soar-after-russian-halts-gas-flow-via-ukraine.

8. Leggett, Theo. 2025. “Germany's car industry crisis - this is what may fix it.” BBC, February 11, 2025. https://www.bbc.com/news/articles/cz6pzwj6qq7o.

Kofner, Yuri. 2021. “MIWI - Institute for Market Integration and Economic Policy.” MIWI Institute –. https://miwi-institut.de/archives/1417.