Christian Rammer is deputy head of the ZEW Research Department “Industrial Economics and International Management” at ZEW. His primary research focus is innovation economics and the transfer of knowledge between science and industry. Rammer is project leader of the annual ZEW Innovation Survey (Mannheim Innovation Panel, MIP) and carries out assessments relating to innovation and business start-ups for the annual report produced by the German government’s Commission of Experts for Research and Innovation. In addition to his involvement in a variety of scientific working groups, Christian Rammer also provides economic policy advice for organisations and institutions such as the European Commission.
In all parts of the world the automotive industry is in the process of reorganising itself. Are German car manufacturers among the winners or losers in this restructuring process?
Rammer: The three big German car companies – VW, Daimler and BMW – are very well-positioned for the next few years to come. With their marketed brands like Mercedes, Audi, BMW and Mini, these manufacturers are among the global leaders in the premium car sector and have gained a reputation for excellence. This has given these companies a competitive edge that is to this day unmatched by any other manufacturer. For example, even Toyota has, only been able to acquire small market shares with the Lexus brand, despite high technological standards and intensive marketing. In the medium term, the premium segment also promises above-average growth rates since the demand for prestigious and well-equipped cars rises disproportionately with increasing incomes. For this reason, I expect to see a positive development for German premium manufacturers in the short term.
What challenges will the automotive industry have to face in the coming years and how can German manufacturers overcome them?
Rammer: One of the greatest challenges for all auto manufacturers – not just German ones – is finding a way to combine the high quality standards of modern cars with a significant reduction in energy consumption, thereby helping to reduce environmental pollution. Ultimately, this means building smaller vehicles that meet the same high standards of comfort and safety. Particularly in the case of premium car manufacturers, this poses an enormous challenge that far exceeds issues of drive and material technologies. This requires entirely new vehicle designs. For instance, one question that needs to be solved is how to combine the quality and efficiency of cars with motorisation. This requires not only great efforts in R&D, but also completely new marketing approaches.
Another challenge is the question of how to adapt the new range of models to the new markets in China, India or Latin America. The climate, infrastructure as well as patterns of mobility in these countries are very different from those in industrialised countries. On top of this, average incomes are considerably lower. It is therefore necessary to develop new types of vehicles than can be produced in a cost-efficient manner and that are adapted to local conditions. It might therefore be sensible to integrate both the production and the development process in these new markets. This also implies that both production figures as well as R&D investment are likely to experience a relatively strong increase in the medium term in these new markets. In the current main countries of production in Western Europe, North America and Japan, production figures are likely to remain below the level recorded at the end of the last boom in mid-2008.
In the short term, all auto manufacturers will also have to address the high excess capacities accumulated during the period from 2006 to 2008. In light of the decline in the utilisation of production capacities, carmakers will also have to reduce manufacturing capacities in these key countries of production. This does, however, not necessarily mean closing down entire factories. In addition to making more flexible use of measures to reduce working hours, it will also be necessary to allow for the temporary shutdown of production capacities whilst ensuring that these are still available for use at short notice should demand rise again.
Which strategies do German car manufacturers employ in order to keep up with competition from well-established heavyweights like Toyota and Ford, as well as emerging companies located predominantly in China and India?
Rammer: Firstly, German manufacturers need to catch up in the area of more environmentally friendly and energy-efficient drive technologies. Carmakers in Germany are very much aware of the importance of this issue, which is why they have been investing more and more heavily in the development of new technologies despite the worsening financial situation.
Another strategic reaction could be to create more vehicles that are more specifically adapted to the regional market conditions in the areas in which they are sold. This would allow car manufacturers to react more quickly to market changes and better harness the market potential of specific regions. This would, however, also require significant adjustments in the areas of development and production. Up until now, German auto manufacturers have been serving world markets from their European production sites. What they need, however, is a smart combination of platform technologies with a decentralised technological design and cooperation with manufacturers in the main sales regions.