Why Germany’s Car Industry Can Show Early Signs of Life Again

Also today on Speed Lines: A tough few years ahead for airlines.

byPatrick George| PUBLISHED Apr 16, 2020 10:49 AM
Why Germany’s Car Industry Can Show Early Signs of Life Again

Welcome back to Speed Lines, The Drive's morning roundup of what matters in the world of transportation. I hope you're still hanging in there. Today we're talking about Germany possibly getting its car industry and greater economy back on track amid the pandemic, and a few other things that probably aren't as uplifting. Get excited. 

Early Stages Of A Comeback For Germany

If you're like me, you're desperate for anything resembling "good" news related to the coronavirus pandemic. Scores of people are dying, essential workers in everything from hospitals to grocery stores are risking their lives, unemployment is skyrocketing and protracted self-quarantine is soul-crushing. Where can we find some hope?

Today I point you to two stories out of Germany that report their car industry is slowly—I must stress that last part—beginning to ramp up again. First, from Reuters, we learn that car production there is poised to return soon:

German carmakers including Volkswagen (VOWG_p.DE) and Mercedes-Benz (DAIGn.DE) will restart production at some German factories next week after the country eased restrictions designed to contain the coronavirus outbreak.

Volkswagen said it will start producing cars for its core brand in Zwickau, Germany, and in Bratislava, Slovakia, on April 20. Plants in Russia, Spain, Portugal and the United States will ramp up production from April 27 onwards, joined by factories in South Africa, Argentina, Brazil and Mexico in May.

Mercedes-Benz parent Daimler said that its plants in Hamburg, Berlin and Untertuerkheim will resume production next week. Its Berlin plant makes engine-management systems for vehicles sold in China.

Germany never banned car production outright. But it did place heavy restrictions on travel and movement and it ordered car dealerships to close up shop. Speaking of, Automotive News reports that dealers there will be allowed to resume sales soon—possibly as early as next week:

The government did not set a date for when dealerships will reopen for new and used car sales because the timing will be up to individual states. But industry groups expect some showrooms could start opening as soon as Monday. They say dealerships will be able to quickly resume sales after they have implemented safety measures because many have remained open for servicing and repairs, which is allowed.

Can we take this as a sign of light at the end of the tunnel? Yes and no. 

It's crucial to remember the country has had far fewer coronavirus deaths than the U.S. or other places—less than 4,000 as of this writing—and it's also been much more aggressive with testing, intensive care and social distancing than other nations. This NYT story goes into a lot of those details, calling Germany a kind of outlier that's now testing more people per week than any other nation in Europe and has such a robust healthcare system it's taking in patients from other countries.

If America's not going to follow that example, we can't expect similar successes anytime soon.

But It Needs The Help

Having said all that, don't think Germany's auto industry hasn't been hammered by the pandemic the same as everyone else. Reuters also reports Volkswagen is revising its outlook for 2020 and predicting a staggering 81 percent decline in Q1 profits:

The carmaker, like others in the sector, halted production at some sites last month as governments around the world imposed lockdowns on their populations to stem the spread of the virus. The measures to contain the movement of people have impacted car sales and profit in the first quarter, the carmaker said.

Operating profit fell to 0.9 billion euros ($979.7 million), which would be an 81% drop from 4.84 billion last year, and the group’s return on sales margin is expected to be around 1.6%, down from 8.1% in the first quarter of 2019.

The full year outlook “can no longer be achieved," Volkswagen said. In February Volkswagen had said it aimed to achieve customer deliveries in line with the previous year, revenue growth of 4% in 2020 and slightly higher passenger car deliveries.

I definitely wonder what this means for VW's expensive, industry-leading pivot to electric vehicles. That's a cash-intensive transformation for the entire company and it could, in theory, get set back by the lack of new vehicle demand and general economic slowdown.

Air Travel Declines, By The Numbers

But in the transportation world, air travel has been hit the hardest by far. This Wall Street Journal story goes into the numbers, and boy, are they bleak:

73%: The world-wide airline capacity decline as of April 8 schedules, measured in available seat-miles, according to OAG schedule data analyzed by Oliver Wyman’s PlaneStats. (A seat-mile is one seat flown one mile.) North America airline capacity was down 72%; Europe 84% and Asia 61%. May schedules will have even fewer flights, at least in the U.S. United says for the month of May, it has pulled 78% of its domestic flying and 89% of international trips from schedules, for a total of 83%.

60%: The percentage of the world-wide commercial airline fleet grounded, according to Cirium, a travel industry data firm. That translates to 15,500 airplanes world-wide. American has more than 300 of its 1,000 mainline jets parked, and more will go into storage. Many won’t come back, slated for early retirement or sale to cargo carriers. Delta has 500 planes already grounded, with plans to park 100 more. United says it is parking 800 aircraft.

I feel like that business will take a lot longer to recover than people building and buying new cars again. Between coronavirus resurgences across the world and a general fear of getting the virus on a plane, it's going to be some time before things look "normal" in the aviation world.

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Your Turn

What lessons can other countries take from Germany here?