German car industry could shed 90,000 jobs

German car industry could shed 90,000 jobs
Photo: DPA
Daily newspaper Die Welt on Friday reported that 90,000 jobs are at risk in the German car industry, as the country's spectacularly successful "cash for clunkers" programme draws to a close.

According to a survey by the consultancy firm Roland Berger, the number of insolvencies in the industry will rise considerably when the government’s Abwrackprämie, or car scrapping premium scheme, soon ends.

The situation is particularly precarious for car dealers, despite selling more cars this year than ever before as a result of the scheme. This increase was the desired effect, said Ralk Landmann, parter at Roland Berger and author of the study, but dealers may now face a boomerang effect.

“When the car scrapping premium is discontinued, almost half of all German dealers will be threatened with insolvency,” Landmann told the newspaper.

If this were to happen, up to 30,000 jobs could disappear.

Landmann predicted a drop in demand and a collapse in revenues, “unfortunately for those big dealer-groups that have done everything right in the past year.”

The government scheme, aiming to bolster the car industry by encouraging consumers to replace old vehicles for new ones with a €2,500 premium, is now approaching its end. The newspaper reported that the German motorist association ADAC has predicted new claims will only be possible for another ten days, with experts suggesting for a long time that its end would mean a dramatic drop in car purchases.

This has likely helped spark insolvencies across Germany’s biggest cities in the industry. In July, for example, the Munich Ford dealer Niedermair & Reich closed two branches.

According to Landmann’s report, only two options remain for German car dealers, if they are to survive the financial crisis: cost-cutting and restructuring the dealer networks by the manufacturers.

“Additionally, mergers would lead to fewer dealers, thus helping the bigger and better dealers to strengthen their competitive position,” said Landmann.

The report drew attention to the unfavourable comparison between sales figures for German dealers and their counterparts in the USA, where dealers sell on average around 500 more cars a year.

“To work profitably, German dealers need to achieve similar sales figures to those on the other side of the Atlantic,” he concluded.

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