Rick Wagoner might just agree. 

One wouldn’t think so to look at their sales figures, but a former BMW economist says both companies are riding for a fall. Worse, if they go, the economist claims the companies could drag the German economy under in the process.
 
So says Helmut Becker, who formerly held the position of chief economist at Bayerische Motoren Werke, AG. Not only are BMW and Daimler in trouble, he says, but also Volkswagen and Porsche. In fact, he sees the entire German auto industry as living a fantasy, not facing reality.
 
One in seven jobs in Germany is based on the auto industry. If Becker is correct, the consequent contraction in the German economy would affect all of Europe.
 
Here’s Becker’s thesis, as reported by Bloomberg.com, the website of the financial news agency. The complete argument is laid out in a paper which Becker has authored, “Outmaneuvered: How the Auto Industry is Driving Germany Into Crisis,” and which is accompanies by extensive statistical analysis.
 
Becker believes that the future of the automobile industry is in China. He sees it as the global automotive battlefield, and sees the German manufacturers as ignoring the threat. China will not only be the biggest market, but one of the biggest manufacturers, as well. He envisions cheap Chinese cars, priced under $5,000, being sold essentially as commodities, world-wide.
 
He attributes the failure by German automakers to grasp the threat to their future to managerial incompetence. Rather than invest their resources in inexpensive cars that could sell in Asian markets, German manufacturers have squandered assets on ego-driven mergers (citing specifically both VW and Daimler) and ultra expensive cars (he refers to them as ‘boy-toys), such as Bugatti, Bentley, Rolls-Royce, and Lamborghini.
 
Becker’s views seem to be overlaid with a political theme. He criticizes German cars as costing too much and polluting too much. That sounds very much like a “green” political agenda. 
 
But Becker’s criticism of the German manufacturers for ignoring the potential of the Asian market, both as a market and as a source of competing low-priced products, seems very accurate. Currently, China has a reputation for delivering poisonous, shoddy products. But that will change. In the early 1950’s, it was Japanese products that were considered cheap and unreliable. We’ve see how long that reality lasted. China is becoming a capable industrial country and India already is one. Both have low-cost labor in abundance, and have global aspirations.
 
German manufacturers, however, may be incapable of doing much about the threat, even if the see it. German auto manufacturers have concentrated on high-priced, high-profit cars because the high costs of labor and manufacturing in Germany make it very difficult for them to produce low-priced cars at a profit. Their managements have, naturally enough, focused the companies on the market segments in which they can make money. Cutting those labor and production costs is hugely difficult in Germany because labor has a much stronger voice in the operation of the auto manufacturers there than it does in the United States. 
 
In many ways, Becker’s description of today’s German auto industry and its problems seems to parallel the position of General Motors in the 1960s. At that time, GM seemed to be riding high, dominating the market and constrained in market penetration only by the risk of antitrust action from the federal government. But, in reality, the beginnings of the import revolution were already in place and would swamp the industry within ten years. By the time GM realized the threat was real, it was locked into a corporate culture and labor environment that made effective response impossible.
 
That, basically, is the picture Becker paints of the German auto industry today.
 
So, why is Rick Wagoner’s picture accompanying this post?
 
It is because everything GM has been doing over the last several years is exactly in line with what Becker is saying. 

No Western auto manufacturer has pushed harder, or more successfully, to establish a presence in China than General Motors. Only Toyota compares to General Motors in the number of countries where it manufactures cars. General Motors and its management clearly see the automobile market as global, and are planning and acting accordingly. Though some German companies have joint ventures with Chinese manufacturers, these are only produce in China products designed elsewhere and designed for other markets. In contrast, GM is designing, engineering, and building in China. In the future, it will be exporting what it is creating in China to other markets, including the United States.
 
So, at least if actions speak louder than words, Rick Wagoner would probably say Mr. Becker is right.

What do you think?
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1 comments:

tango  (372) posted on 08.29.2007

I’m not so sure Becker is all that accurate. VW for one makes a lot of cars outside of German borders, and in fact has quite a few arrangements in China as well. BMW is also in China as is Mercedes. Porsche itself doesn’t have a direct presence but does so by default as Porsche owns majority of VW. What may indeed happen is that as wealth accumulates in China (and laws adjust to suit), the Chinese people no longer want the "locally" built models, but instead demand the "imported" ones. Enter the Porsches, the Ferraris, and yes, the Fords (I threw that one in just for you, Ralph LOL) selling well in China. I think what is hurting the Germans right now is that they are no longer seen as champions of quality, but more of quantity. We live in a world where Hyundais are better built than Volkswagens. Time to regroup and retool.

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