German Automotive Industry: Wake-Up Call by Covid-19.

Instead of urgently pushing much needed innovation in the wake of COVID-19 and the climate crisis, some German manufacturers are abusing the current crisis. These manufacturers are paying out hefty dividends to shareholders, punishing their workers by forcing them into – government-supported! – job retention programs (Kurzarbeit). In addition, they are asking for generous government subsidies for ecologically obsolete combustion engine cars and are asking to raise the limit for CO2 emissions from 95g to 140g, so high-profit luxury cars would be promoted beyond common sense.

BMW is a prime example. In 2019, BMW had ~€5B profits, paying a €1,6B dividend to shareholders (€770Mio to the Quandt family alone). All while laying off around 20,000 people of their 134,000-person workforce. These laid off employees—mostly from production lines, but also from R&D—are now in the government-supported job retention program. And, BMW is still asking the German government for further subsidies on cars openly infringing on legal climate crisis measures. This alone may be frivolous enough.

Source of financial data: Süddeutsche Zeitung, Manager Magazin and BMW Financial Reporting

BMW’s business practices are representative of a much bigger problem in the German automotive industry. Despite obvious scientific data about the effects of global warming and the needs to counter the tide, the German automotive industry pursues innovative changes halfheartedly. After 30 years of pioneering by Toyota and 15 years by Tesla, German car makers haven’t designed and brought to market a viable line-up of affordable* renewable energy cars. I am not even speaking of advanced personal mobility concepts with software-driven automation.

*) Porsche’s high-price, electric luxury sedan TAYCAN is cutting-edge, but not what one calls “affordable”.

Mid 1990s, I was an adviser for a forward-looking German mobility consortium — funded by major car companies — by which the industry tested new technologies applying non-fossil energy concepts. In Stuttgart, there were even public busses propelled by fuel cell technology. However, when Saudi Arabia, Kuwait, and UAE started to invest in the industry, the consortium was cancelled. One line stood out of the otherwise very polite termination statement: “…support for petrol projects only”.

Renault Electric Platform

In order to advance Germany’s “Social Market Economy” (Soziale Marktwirtschaft), “social” cannot be replaced by american-style “profit maximation.” Rather, innovative disruption is essential to the economic viability of the German car industry. Ironically, German designers and engineers are among the World’s best and most innovative. I have seen stunning and visionary progressive work from friends and design peers at German car companies.  However, their work is typically rejected due to executive cowardice. At best, their innovative designs are presented as “show cars,” yet never reach mass manufacturing.

Especially the automotive industry exposes Germany’s Achilles heel. Too many executive boards are driven by pleasing their shareholders only. They are afraid of risk and change, often devoid of human empathy. The same goes for most supervising boards of directors, which are filled with investor-directors plus former CEOs who often cover up their past failures. And this is hurting the suppliers as well, who are mostly family owned “Mittelstand Companies.”

The German government must also change – both at the federal and state level. The COVID-19 crisis requires more than surely needed emergency measures. The backroom cuddling with the automotive industry must stop, and there must be innovation-minded incentives, including lower taxation and research credits. There must be financial incentive for the industry to collaborate seriously with advanced research in autonomous mobility and AI in Silicon Valley and Shenzhen Valley. Instead these companies are abusing their R&D labs here in the Valley as a “fig leaf”. Germany’s key industry is mobility, which now faces epochal changes, it is a matter of new success or past glory. For the shareholders, re-pay eventually received dividends for 2019 and forgo on dividends until 2024. Surplus money must be re-invested into R&D and design. Merger and acquisitions should be done only with 100% cash, zero debt, and no purchasing of own stock.

The wastelands of Motown-Detroit, and the loss of the German electronic high-tech industry 40 years ago are a visible warning. When the then world leader in computing, IBM, focused on “corporate business” despite sweeping technology changes in 1984, Steve Jobs saw “people”.