German Automobile Industry

Contents
Introduction......................................................................................................................................3

Key Issues........................................................................................................................................3

Porter’s Five Forces.........................................................................................................................4

 Barriers to Entry...................................................................................................................4

 Threat of Substitutes.............................................................................................................4

 Competitive Rivalry..............................................................................................................5

 Bargaining Power of Suppliers.............................................................................................5

 Bargaining Power of Buyers.................................................................................................6

Market Size......................................................................................................................................6

Market Share....................................................................................................................................7

Market Structure..............................................................................................................................7

Future Direction...............................................................................................................................8

Conclusion.......................................................................................................................................8

References........................................................................................................................................9

2
INTRODUCTION
Germany is renowned for its automobile industry throughout the whole world. Their
interconnected web of supply chains, manufacturers, retailers are helping the automobile
industry in Germany even more. Now, Germany is concentrating on developing and researching
on futuristic designs and the manufacturing of those cars.

German automobile industry has about 426 billion euros in total sales, 223 billion euros in export
market in 2018(www.statista.com, 2020). This automobile industry contributes in German
economy. But as auto trends shift towards greener transportation and smart digitized factories,
they are trying to cope with the situation innovating newer technologies.

KEY ISSUES
German automobile industry has been facing some core issues that support as well as hinder the
growth of the automobile market in Germany. Some of the key issues are:

 Germany is about to miss its targets of 2020 of carbon pollution reduction because of
SUV sales whose selling curve has climbed than last year. These type of passenger cars
account for about 11 percent of the country’s greenhouse gas emissions.
 The average age of a new car buyer in Germany has reached an average age of 53, which
seems to be weird and indicates a difficult future for German automobile industry.
 The German government and automakers are struggling to keep people happy who are
conscious about their surrounding environment. People are seeming to be more confused
regarding their fondness of bigger vehicles and climate change. So, nowadays, riding a
bike and car-sharing have become a preferable alternative in Berlin.
 To reduce the risks of climate change, new legal frameworks have been set up for semi-
autonomous cars which can save energy and are friendly to the environment.

3
PORTER’S FIVE FORCES
Five Forces model of Michael Porter is a very analysed concept for the evaluation of a
company’s competitive position in the market. It is such a framework that shows implicit and
influences of five forces.

• Barriers to Entry

It is very tough to start manufacturing automobiles in German. The emergence of foreign

competitors with the larger capital, new technologies and management skills have put an end to
the market share of many automobile companies. Globalization creates internationally
investment helping businesses to move from national and domestic markets to a worldwide
environment. So, for everyone possessing enough money, it is becoming easier to enter the
Domestic market. Consumer trends and tastes control the innovation in automobile technology
(Encyclopaedia Britannica, 2020). Consumer sales is the largest source of revenue for every
business. So, consumer satisfaction should be considered as one of the most important factors.

• Threat of Substitutes

People seek to save money in transportation. If the cost of operating a vehicle becomes higher,
people will seek alternative in transportation options. The price of fuel impacts greatly on buying
decision of the customers. Besides these, when determining the availability of substitutes, other
parameters such as time, money, personal preference and convenience should be considered.
Market shares of different brand’s in 2017/2018 is shown in a pie chart below:

4
 Market Share Percentage

Hyundai
Renault 5%
5%
Skoda VW
8% 27%

Opel
9%

Ford Mercedes
10% 13%

Audi BMW
11% 11%

VW Mercedes BMW Audi Ford

Opel Skoda Renault Hyundai

Figure 1: Market Shares of Competitors, Source: best-selling-cars.com, 2020

• Competitive Rivalry

Highly competitive industries like automobiles earn low returns because the competition in
Germany. The auto industry is an oligopoly market which helps to minimize the impacts of
price-based competition. Rebates, preferred financing and long-term warranties are applied to
lure in customers, to increase the profit margins for vehicle sales. Design changes of a car can
cause massive costings, delays and glitches. These activities slow revenue growth. All
automobile industries seem to re design their older model creating more tension in the
automobile industry.

• Bargaining Power of Suppliers

Many suppliers rely on one or two automakers to sell their products. If an automaker decides to
change his car type and the suppliers, it pulls the previous seller’s business. For this reason,
suppliers are extremely vulnerable to the demands and requirements of the manufacturer. The
suppliers who sell the parts must make them work longer as the longer a car stays operational,
the greater the satisfaction of the customers (Cantner, Dreßler and Krüger, 2014). But longer
lasting parts is not such good news for parts makers, as they make less profit from less sale of
goods.
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 • Bargaining Power of Buyers

In Germany, the bargaining power of automakers are dictated. As the consumers are very price
sensitive, if the price of a certain car increases, they react adversely to the change. So, for this
reason German people has adequate buying decision power to control the price of a product and
the new innovations in it.

MARKET SIZE
Nowadays, the prospect of driving has significantly skewed automobile market shares by fuel
type. New registrations of gasoline engine vehicles in particular has gone up significantly.
Besides this, electric-powered vehicles are becoming more acceptable to the people due to
environment friendly design. Sales of battery electric cars and plug-in hybrids have doubled to a
total of 55,000 vehicles in 2019. This boosted the electric car share of the total market to 2.3
percent. In 2018, there were 20 percent more new vehicle registrations than the previous year.
Total domestic sales (in millions) of cars are described in the chart enlisted below:

Figure 2: Domestic Cars Sales, Source: ceicdata.com, 2020

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MARKET SHARE
Being home to the modern car, the German automobile industry has the third highest car
production in the world, the fourth highest total motor vehicle production. With an annual output
close to six million and a 31.5% share of the total European Union production. Market share of
the new car innovator has increased with time such as:

Shares in German Car Industry (%)

70 65.2
63 62.3
60
52.7
50
40
30
20
10
0
Share of innovators

2015 2016 2017 2018

Figure 3: Share of innovators, Source: Statista, 2020

MARKET STRUCTURE
As a result of liberalization, automotive industry gains more benefit especially industry players
in expanded their territory. The automobile companies consist of national and non-national
brands as they contribute to national economy of Germany. After considering 4 largest firms in
the market, their total shares are 65.3% which almost 2/3 of the total industry market shares. This
indicates that automobile the market fall under oligopoly (Schumann, 2011). Although the
automotive industry has much competitors, but it is not that much competitive. Based on the
analysis using financial ratios with some of the largest firms, the result shows the industry is an
oligopoly market with 65.3% out of total market shares.

7
FUTURE DIRECTION
The German automotive market is slowly shifting towards a service-oriented stature with new
competitors focusing extensively on customer experience and consumer data. Transitions in
automobile markets provides opportunities for the business people who are trying to connect
with the customer from the database analysis. Companies are trying to sustain revenue and profit
pacing with the current states of technology and consumer preferences. Geographical
diversification ensures high profitability in investment and R&D expenditure scenario. Now, all
are focusing on connected and autonomous driving vehicles in the country. Here is the data of
Previous 10 years of R & D investment (in millions):

Figure 4: Last 10 years R&D investment, Source: ceicdata.com, 2020

CONCLUSION
The economic transformation of Central European countries has impacts in the automobile
industry. As this industry is sensitive to technology and human-capital intensive, so, by inducing
higher imports of finished cars from Central Europe is reducing the growth of exports from the
German automobile companies.

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REFERENCES
 Cantner, U., Dreßler, K. and Krüger, J. (2014). Firm survival in the German automobile
industry. Jena: Univ., Wirtschaftswiss. Fak.
 Encyclopedia Britannica. (2020). automotive industry | History, Developments, & Facts.
[online] Available at: https://www.britannica.com/technology/automotive-industry
[Accessed 4 Feb. 2020].
 Guerzoni, M. and Soellner, R. (2013). UNIQUENESS SEEKING AND DEMAND
ESTIMATION IN THE GERMAN AUTOMOBILE INDUSTRY. Eurasian Business
Review, pp.179-199.
 Schumann, M. (2011). The German automobile industry in transition.
 Soellner, R. and Guerzoni, M. (2012). Uniqueness Seeking and Demand Estimation in
the German Automobile Industry. SSRN Electronic Journal.
 www.statista.com. (2020). Topic: Automobile industry in Germany. [online] Available
at: https://www.statista.com/topics/3202/automobile-industry-in-germany/ [Accessed 4
Feb. 2020].