Germany's carmakers caught on the wrong side?

The suspicion is growing that Germany's carmakers are caught on the wrong side of two huge coming shifts in demand – towards fuel-efficient "sensible motoring", especially in the developed world and towards "cheap and cheerful" cars, mainly in Asia. As German manufacturers have long resisted to serve the "cheap and cheerful" segment, the premium dominated market will now have to face a changing towards "sensible motoring", writes The Economist. Whether it be emissions standards, a social shift that makes people guilty about big cars, or a new ecological sensitivity - buyers' tastes are changing. While in the past premium carmakers have tended to assume a certain level of price-insensitivity among their clientele, a gradual decoupling of personal mobility from emotion is threatening the German motor industry. As markets polarise between luxury and low-cost cars, German manufacturers will need to rely on their strengths to defend their leading market position: a huge network of suppliers, cooperations with innovative university research departments, a long tradition in re-engineering, and high production flexibility. Every year, the German car industry, accounting for one in seven manufacturing jobs of the country, spends € 16 billion on research and development.

--image1--Apart from social changes, the political pressure on the car industry is increasing. The new EU strategy to reduce CO₂ emissions from cars to 130 g/km by 2012 will leave Germany with the most work: in the EU only six German-made models meet the target, while 34 of those made by competitors do. President calls for "more courage"

German President Horst Köhler has added fuel to the flames by strongly criticising German carmakers' lack of environmental consciousness and the absence of government's courage to act appropriately. In an interview with a leading German daily he said that despite successful developments in the automobile industry carmakers "have not written a glorious chapter regarding the world's ecological development." Industry and policy would need to reinforce their efforts to stimulate consumer demand that is compatible with environmental targets. Ecological innovations and long term visions were urgently needed. In the meantime, the German government is pushing forward the early introduction of CO₂-based car taxation. Environment Minister Gabriel is confident to replace the current tax system based on engine size with a new one that would exempt low-emissive cars from taxes by early 2008. While the German car industry has applauded this approach, opponents favour the introduction of stringent technical standards as a more effective tool to achieve long term reductions.