German marques are losing their allure and that's got Germany worried

[FRANKFURT] Germany is at a crossroads, and nowhere will that be more evident than at the Frankfurt car show this week.

Despite sleek new electric models like the Porsche Taycan, the traditional showcase of German automotive excellence risks becoming a platform for protest rather than preening, drawing attention to a generation of young consumers more likely to demonstrate against the car's role in global warming than shop for a new VW, BMW or Mercedes-Benz.

Cars have made Germany into a global manufacturing powerhouse, but pollution concerns - intensified by Volkswagen AG's 2015 diesel-cheating scandal - have sullied the reputation of a product that once embodied individual freedom. More recently, trade woes and slowing economies have hit demand. The consequence is Germany's car production slumping to the lowest level since at least 2010.

"Investors have been fearful about the industry's prospects for a number of years, and the list of things to worry about doesn't seem to be getting shorter," said Max Warburton, a London-based analyst with Sanford C Bernstein. "There is a general sense that things are about to get worse."

The end of the combustion-engine era and car buyers more interested in data connectivity than horsepower threaten Germany's spot at the top of the car pecking order. Signs of trouble abound. In addition to numerous profit warnings this year, Mercedes maker Daimler AG delayed a plan to expand capacity at a Hungarian factory, parts giant Continental AG has started talks to cut jobs, and car supplier Eisenmann filed for insolvency.

Germany is teetering on the brink of recession, and the car industry is pivotal to the economy's health. Carmakers such as Volkswagen, Daimler and BMW AG as well as parts suppliers like Robert Bosch GmbH and Continental employ about 830,000 people in the country and support everything from machine makers to advertising agencies and cleaning services. With factories from Portugal to Poland, the importance of the sector radiates across Europe as well.

With emissions regulations set to tighten starting next year, concerns are mounting that companies across the country's industrial landscape are ill-equipped to deal with the technology transition resulting from climate change and increasing levels of digitalisation. IG Metall organised a demonstration in June, with more than 50,000 people rallying in Berlin, to draw attention to the risk of widespread layoffs from what Germany's biggest industrial union calls "the transformation."

Far too many companies stick their heads in the sand and rest on their laurels," IG Metall Chairman Joerg Hofmann said. "If companies continue to act so defensively, they're playing roulette with the futures of their workers."

The concern is that the future of Germany's car towns could look something like Ruesselsheim. The home of the Opel brand, which once rivalled VW as the German leader, has faded along with the carmaker's performance. After years of losses, it was sold in 2017 by General Motors Co to France's PSA Group, which is slashing the Opel's 20,000-strong German workforce by nearly a fifth.

"Everybody in Ruesselsheim is worried," said Servet Ibrahimoglu, owner of a kebab restaurant down the street from Opel's factory, adding that his business has dropped by a third. "Before at lunchtime, this place was full. Now there's no one."

The car industry's efforts to adapt to the risks will be on display in Frankfurt, and the stakes couldn't be higher for models like the VW ID.3. The battery-powered hatchback is the auto giant's first effort in an aggressive push into electric cars, which will make its debut at the Germany's premier auto exhibition.

Under bright lights and blaring music, the show is a throwback to the car industry's glory days, but it's fading as public interest in old-school car show wanes. Toyota, Volvo and Ferrari are among the 30 brands skipping the show. For those still there, the displays will predominantly feature traditional gas guzzlers and other cash cows. Land Rover will unveil a resurrected version of the Defender, the British brand's iconic offroader.

"Instead of presenting new mobility concepts for the future, we'll see lots of SUVs on stands that have become few and far between," said Ferdinand Dudenhoeffer, director of the University of Duisburg-Essen's Center for Automotive Research. "The recession in the global auto business is forcing savings cuts for car manufacturers and suppliers, along with a rapid loss of attractiveness of the classic 'analog' car shows."

Make or break

Where German brands once tried to outdo one another with outlandish displays like indoor tracks and multistory exhibition spaces, the main drama may take place outside Frankfurt's sprawling fairgrounds. Greenpeace and Germany's BUND have called for a mass march on the site on Saturday, joined by groups of cyclists setting off from around Frankfurt to underscore their call for the end of the combustion engine.

Despite doubts from environmentalists, carmakers have got the message that they're facing a make-or-break moment. The industry is spending billions of euros to develop cleaner vehicles and counter the emergence of ride-sharing services like Uber Technologies Inc., which has a market value equivalent to Daimler, the inventor of the car.

"I'm absolutely convinced that carmakers will adapt to the situation," BMW's labour head Manfred Schoch said during a testy panel discussion with activists in Berlin last week. "Those that don't will go out of business."

BLOOMBERG