Rising Tide: Asian Automakers Out maneuvering German Giants
German automobile manufacturers experience lag in advancement
In the ever-changing world of automobiles, it's the Asian manufacturers that are claiming the upper hand against their German counterparts. A comprehensive study by EY reveals this surprising trend, as Asia's automotive industry steadily advances while European industry veterans struggle to stay afloat.
The steep decline in sales and profits among Germany's automotive titans starkly contrasts with the significant gains made by Asian competitors, particularly Chinese manufacturers. In fact, top players like BYD and Geely boldly lead the charge, with positive sales growth of 14.9 percent and eye-catching profit increases of 66 percent, surpassing stalwarts such as Volkswagen, BMW, and Mercedes-Benz.
Despite a slight increase in sales for Volkswagen, both BMW and Mercedes-Benz saw substantial drops. In total, the combined sales for the German trio plummeted by 2.3 percent, and profits fell by a whopping third. Similar drops were observed in American manufacturers.
This shift in power is perhaps not quite as "somewhat surprising" as the world might have thought, given the Asian automakers' strategic approach.
Adapt or Perish
EY analyst Constantin Gall predicts a gloomy outlook for the beleaguered industry. He warns that the crisis is far from over, and the competition is set to heat up further in the coming months. "Many established manufacturers' entire business models are at risk," cautions Gall. "The automotive industry is currently grappling with challenges on multiple fronts, and we must adapt or face existential questions."
Economic slowdown, high costs, and the sluggish rollout of electric vehicles combined with the shrinking Chinese market present a perfect storm for the established manufacturers, particularly German ones. Add to that the proposed 25 percent tariffs on imported cars imposed by President Donald Trump, and a financial freefall seems imminent. In the worst-case scenario, these tariffs could result in billions of dollars in losses for both European and American manufacturers, further eroding profit margins.
Meanwhile, Chinese manufacturers, who are not present in the US, will continue to keep the distance. Despite a minor success for Volkswagen, who managed to compete on revenue levels with Toyota, the Japanese company outreached VW in sales and profit margin. In 2019, Volkswagen even overtook Toyota in car sales, but subsequently lost the crown.
A New Age of Automotive Activism
To survive and thrive in this competitive landscape, established manufacturers must rethink their business strategies. Cost-cutting alone may not be sufficient, and a complete reinvention is needed. This would involve comprehensive digitization, faster vehicle development, and quicker decision-making.
The new Asian competitors have much to teach the incumbents in terms of agility, focus, and adaptability. Chinese manufacturers have shown that investing a lot of money is not the only key to success; speed, flexibility, and a clear strategy in allocation of investments are paramount.
In this new era of the automotive industry, the adaptation of these lessons by the old-school players could well mean the difference between survival and stagnation.
Sources:ntv.de, rog/dpa?omhide=true)
- Automakers
- German automakers
- Volkswagen
- BMW
- Mercedes-Benz Group AG
- Chinese automakers
Insights:
- Chinese automakers achieve their success through lower development costs, focused product lines, quick time-to-market, software-first approach, rapid iteration, adaptability, growing domestic and international markets, strategic partnerships, and aggressive electrification strategies.
- Established manufacturers like Volkswagen must adapt to new challenges, streamline, focus on digitization, and make swifter decisions to avoid falling further behind. Instead of cost-cutting alone, they need a holistic reinvention of their business model.
- The Chinese automakers' strategic approach, characterized by lower development costs, quick time-to-market, and a clear focus on their product lines, has enabled them to surpass Germany's automotive giants like Volkswagen, BMW, and Mercedes-Benz.
- In the same vein, the success of Chinese automakers stems from their ability to adapt swiftly, invest strategically, and iterate rapidly, offering valuable lessons for established manufacturers seeking to survive and thrive in the current competitive automotive landscape.
