Is Germany's car industry hitting the brakes?

TESLA recently announced it would be building a "giga-factory" just outside Berlin. The factory will create as many as 8,000 jobs and crank out up to 150,000 cars every year.

Two weeks after the Tesla announcement, Audi made an announcement of its own - albeit a less cheerful one. While Elon Musk and company are ramping up, Audi will be paring back, cutting 9,500 jobs in Germany between now and 2025.

These two pieces of news seem to confirm a narrative that is gaining traction. It goes like this: Germany has failed to embrace the future. It has been complacent for too long, economically and politically, coasting on former glories. Now, the new world is coming for it.

This story is too simple to be entirely true, of course. And yet Germany's relationship with cars does reflect many of the political, economic and societal revolutions the country is struggling to cope with.

For decades, Germans and cars went together like weisswurst and mustard. Cars were an inextricable part of its international image and helped shape its national identity: Germans loved cars. Germans built great cars. Germans liked to drive fast on the autobahnin their beloved great cars. Cars were a powerful symbol of the wirtschaftswunder, the economic miracle that lifted the country out of its postwar desperation, and served as proof that the ingenuity of German engineers could be applied to peaceful industries.

Today, though, Germans and cars have an ambivalent relationship at best.

Let's start with the economy. Car manufacturing remains one of its most important pillars - in 2018, more than 800,000 German jobs depended on the car industry, which brought in more than 400 billion euros (S$603.9 billion) in revenue, more than two-thirds of which came from abroad. The most important markets for German car manufacturers and suppliers are China and the United States. China is becoming increasingly important. This year, 40 per cent of car manufacturing revenue will come from China, according to Ferdinand Dudenhöffer, a professor of automotive economics at the University of Duisburg.

Sounds good, right? Well, it's complicated. In a world where institutional and economic interdependence is increasingly "weaponised", as the American political scientists Abraham Newman and Henry Farrell put it, this German reliance on exports is becoming a vulnerability. That dependence on foreign markets - epitomised by cars, the country's No 1 export - is limiting its room to manoeuvre.

Take China. Though human rights groups have long criticised the state suppression of Uighurs, Chancellor Angela Merkel avoided addressing it during her visit there last summer. Germany's response to recent revelations about the scope and atrocity of the internment camps in the Chinese province of Xinjiang was muted. Ms Merkel merely said that she supported the European Union's criticism of human rights violations in China and, like her foreign minister Heiko Maas, called for United Nations representatives to be granted access to the region. As usual, the chancellor avoided open confrontation.

In trans-Atlantic relations, too, Germany has had to invest a lot of political resources in order to protect its car industry. Because US President Donald Trump's threat to impose tariffs of up to 25 per cent on European cars still looms, Germany has avoided angering him. This may have been one reason for the recent announcement that Germany would significantly raise its contributions to Nato's budget. And when Jean-Claude Juncker, then the president of the European Commission, managed to strike a deal in 2018 promising that the union would buy more American soya beans and increase its imports of American liquefied natural gas to appease the president and fend off tariffs, he was - at least in part - acting on Germany's behalf.

Within the European Union, too, Germany has invested heavily in protecting its automotive industry. When the bloc introduced limits on carbon dioxide emissions for cars in 2013, Ms Merkel was able to water down the commission's proposal in favour of Germany's carmakers, many of which specialise in large vehicles with high emissions. She could not repeat the trick in 2018, however. In 2020, new and stricter rules will kick in.

Ironically, the industry ended up weaker for Germany's protectionist politics within the union, experts said. Under the lax European Union carbon dioxide caps, German car builders had little incentive to modernise their fleets. So while they kept on building and selling tank-like vehicles, companies like Tesla developed rapidly, leaving Germany behind both technologically and in securing markets. Part of the big job cuts the industry is facing now can be attributed to this failure.

BITTER CULTURE WAR

Instead of just building cleaner cars, German carmakers took to cheating, destroying the image of the honest German merchant and engineer. Over the past few years, Germans learnt that Volkswagen and other German carmakers were involved in developing and deploying software that activated controls on nitrogen oxide emissions during testing only, while real-world emissions were much higher.

Last but not least, cars have become the object of an increasingly bitter culture war in the country. A number of forces - climate change, clogged streets, limited parking - have coalesced to generate a coalition, mostly based in liberal urban milieus, that is pushing for a car-free future. Berlin, Stuttgart and Frankfurt have eliminated certain types of diesel vehicles from parts of their inner cities to comply with European Union air pollution limits. Some policymakers from the Green Party, which is growing in strength, have lobbied for radical changes such as a total end to combustion engines by 2030.

But the backlash to such policy proposals has been fierce. It is probably fair to say that most Germans cannot imagine life without a car - sometimes for understandable reasons. When you are older or living in the countryside or in a small town, getting around without a car is still practically impossible. Cultural antipathies play a role, too. A majority of Germans think they may be forced to bow to the utopian ideas of a handful of inner-city Berliners. The far-right populist Alternative for Germany party, good at detecting anger, is already running a pro-diesel campaign.

So far, German carmakers have been able to sit back and watch these two factions fight it out. The market share of SUVs and off-road vehicles has just reached another record high - approximately every third car newly registered in Germany is either an SUV or an off-road vehicle. In that regard, too, cars reflect the state of the nation - that is, its hypocrisy. Germany talks a big game on the environment, but its drivers buy tanks. Germany talks innovation but cheats on emissions tests. Germany discusses showing more leadership in international relations but has trouble seeing past its own economic interests.

And yet the dire pessimism over the future of Germany's car industry that currently dominates public discourse may be too dark after all - just as analysis writing the country off may be premature. Prof Dudenhöffer finds that German car builders are finally shifting gears under the threat of huge union fines if the carmakers do not add more low- or no-emissions vehicles to their fleets. These shifts show that companies such as Volkswagen are still very capable of competing with the technological avant-garde. (In fact, VW's Audi subsidiary is cutting those 9,500 jobs to free up money to invest in electric vehicles.)

From the perspective of Germany as a nation, outside pressure is also mounting - and that may be just what it needs. There is a growing, if not yet mainstream, awareness that acceleration is necessary - that Germany must play a more active role in foreign policy just as it must face uncomfortable truths at home in order to fight climate change. The country is beginning to see that it needs to change. Whether this realisation will spread quickly enough is the big question for 2020. NYTIMES

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