Why Volkswagen Is Systematically Important For Germany And Europe

Tyler Durden's picture

It is no secret that with the rest of the US economy, and especially housing, sputtering the one bright spot for US production and manufacturing has been the automotive sector. Whether the recent strength has been a function of money-losing leases, extremely generous terms on auto loans including a new rise in subprime debt issuance is up for debate, but whatever the reason carmakers have had a few years of relative stability (with China rolling over this won't last, but that's a different topic).

But if in the US automakers have been the solitary silver lining to an economy that is once again rolling over (as the Fed lack of a rate hike just confirmed), in Europe carmakers are absolutely critical, while for export powerhouse Germany, one can say the local auto industry is nothing short of systemic.

Here are the latest facts on Germany's automotive industry from GTAI.de

  • German automobile manufacturers produced almost 13 million vehicles in 2013 – equivalent to more than 17 percent of total global production.  Twenty-one of the world’s 100 top automotive suppliers are German companies.
  • The automotive industry is the largest industry sector in Germany. In 2014, the auto sector listed a turnover of EUR 384 billion, around 20 percent of total German industry revenue. Source: VDA 2015
  • The auto industry is the largest industrial sector in Germany, contributing about 2.7% to gross domestic product.
  • Some 20% of Germany's exports are made up of vehicles and parts.
  • Germany is Europe’s number one automotive market; accounting for over 30 percent of all passenger cars manufactured (5.6 million) and almost 20 percent of all new car registrations (3.04 million). Source: ACEA 2015
  • Germany is home to 43 automobile assembly and engine production plants with a capacity of over one third of total automobile production in Europe. Source: ACEA 2015
  • One in every five cars worldwide carries a German brand. Source: VDA 2015
  • In 2014, automotive industry R&D expenditure reached EUR 17.6 billion, equivalent to one third of Germany’s total R&D expenditure. Source: VDA 2015
  • 21 of the world’s top 100 automotive suppliers are German companies. Source: PWC 2013
  • Around 77 percent of cars produced in Germany in 2014 were ultimately destined for international markets – a new record. Source: VDA 2015
  • R&D personnel within the German automobile industry reached a level of just over 93,000 in 2014. Around 775,000 are employed in the industry as a whole. Source: VDA 2015

Then there is the value-chain, i.e., the suppliers and the providers of R&D for Germany's automotive industry.

  • Germany boasts 21 of the world’s top 100 automotive OEM suppliers. Of these 21 companies, 18 belong to the top 50 automotive suppliers in Europe. Breaking the figures down further still, six belong to the top 25 global suppliers by size.
  • Exports account for almost 37 percent of 2013 revenue generated by German OEM suppliers

As for why Volkswagen is the benchmark? Because not only is the Volkswagen Group the largest automaker in Germany, it is also the largest German company by revenue according to Forbes (Daimler is #3, BMW is #7). Some other facts:

  • The Volkswagen group accounts for roughly one in 10 vehicles sold globally.
  • Most German auto sales came from the Volkswagen group, which reported just over 202 billion euros in revenue in 2014.
  • Roughly 70% of Volkswagen vehicles are sold outside German borders.
  • Volkswagen employs nearly 600,000 people around the world, and more than a third of the 775,000 people who work in the auto industry in Germany.

In short, while banking may be the most important sector to the hyper-financialized US economy, for the export-driven German economy - whose exports account for over 40% of GDP - it is all about the car companies and their massive supply chains.

So what happened over the past 48 hours to Volkswagen, which has lost over a third of its market cap, or more than the market cap of Tesla, is nothing short of an earthshattering cataclysm to an economy where all the cogs and gears and running in a smooth, undisturbed ensemble... until everything changed overnight.

What happens next to Volkswagen is unknown: as noted earlier a Credit Suisse laid out what may be the worst case scenario: "the balance sheet is at significant risk to deteriorate beyond the impact of the €6.5bn provision the company has announced so far. With group free cash flow generation largely dependent on China (we estimate 94% of industrial free cash flow – 78% dividend from JV), there could be increasingly risk to dividend payments."

But it is not so much concerns about Volkswagen as fears the entire German auto industry may be at risk.

The best case scenario: "Even a heavy drop in diesel car production and exports would probably not subtract more than 0.2% from German GDP," said Berenberg economist Holger Schmieding. "Demand for non-diesel cars may rise and partly offset the drop in demand for diesel-powered cars."

The worst? Quote Theo Vermaelen, a finance professor at INSEAD: "If nobody else has done it, the damage would be limited. If it looks like it's more companies, not just Volkswagen, it would be a major problem for the German car industry, and the German economy overall."

And that's the question German investors are wrestling with: was it just one cockroach. If it was more, the ultimate outcome will (not may) be more QE from the ECB because with Europe tentative recovery also sputtering after 6 months of ECB QE, a steak through the heart of Germany's most important industry, will be just the black swan that sends Europe into a recession.

So the question becomes: will Mario Draghi wait to see the fallout of the rapidly escalating Volkwsagen scandal, or will he preempt and ratchet up the bondbuying even more? Find out in the next few weeks.

* * *

Finally for those curious to learn more, we present what may be the winner of the "worst named corporate presentation" award for 2015 - Volkswagen's "Stability in Volatile Times" released earlier today.

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coeur de maquis's picture

Nukes for Clunkers???

Stuck on Zero's picture

And German car drivers are consistently voted as the rudest on the road.

Lucky Leprachaun's picture

Never heard that said before and it's total rubbish.  If you want real rudeness go to an Arab country or the Indian sub-continent.

kal's picture

I have to strongly agree, the worst seem to be BMW drivers, followed closely by Mercedes then Volksewagon/Audi. You took the words right out of my mouth.

RaceToTheBottom's picture

The Prius and Tesla drivers also are both bad.  

Prius drivers have a "I'm saving the world, so fuck you if I am going too slow" which is quite irritating.

While Tesla drivers in the rain drive like they have the "fear of god" in them.  Which they probably need to.

Freddie's picture

Have you ever driven in Germany or the rest of Europe?

 

This whole VW thing is an attack on Germany by the ZUSA.  Just like BNP Paribas "fine" for selling off Russia's US Treaury bonds.  This was the real reason.  This VW thing is about Germany getting to cozy to Russia, Germany bailing on the Syria genocide project and Germany needing to take 20 million refugees.

If you do not do what the PNAC Neocons tell you then you will be attacked.  Will S&P and Moody's lower Germany's debt next?   The USA is totally criminal.

 

 

The Chief's picture

Freddie,

I just bought a brand spankin' new Golf TDI. It rocks. Additionally, because of this ziomissle of big league bungholery launched at my favorite engineers (older Audi's excluded), I will buy another one this week...a Taoureg TDI if I can find it in my fav color.

Fuck these fucking zioscum. Its not yet time, but the hour doth approacheth.

nmewn's picture

So, I guezzz Frau Merkel von't be needing all zose Syrian vorker bee's afterall ;-)

Goldilocks's picture

Germanwings Airbus A320

The Andrews Sisters "Straighten Up and fly Right"
http://www.youtube.com/watch?v=bmjNIq49398 (2:06)

Scooby Dooby Doo's picture

Scooby rented a Passat for a week for a long trip. Didn't like it at all. I got cramps in my driving arm and paw over an 8 hr stretch.

Dinero D. Profit's picture

I'm glad this thread doesn't have any German jokes.  I'm very sensitive about German jokes.  My grandfather died in a concentration camp.  He fell off the watchtower.

nnnnnn's picture
nnnnnn (not verified) Sep 22, 2015 5:33 PM

zyrian slawe wokers by vw will making fix zee jerman ekonomi

Winston Smith 2009's picture

Volkswagen Admits 'Defeat Device' On 11 Million Engines Worldwide, Sets Aside $7.2B

http://jalopnik.com/volkswagen-admits-it-cheated-with-11-million-engines...

Let's see - VW, Glencore, Petrobras, EMs in general, China... 

Hell, we may finally get a trigger to get this crash going. Get it over with, flush the speculators, break up anything "too big to fail" this time, and start over.

Irishcyclist's picture

VW is a huge company. It has gobbled up other foreign indigenous car manufacturers in Spain, the Czech Republic, in recent years and decades.

 

So the stakes vested in VW by VW are large by any measure. 

NaiLib's picture

:) Still no other country that can produce cars like the Germans. And take a look at the so called "drive line" in most other cars....guessed right, German too. Very unneccessary thing to do by VW, but sorry, no one else can compete with them. This will give a populous boost to the rest for a while , but eventually market will still conclude, German casr still the best. Good luck with your bashing. When the car warz are over....last man standing will be.....

John Bigboote's picture

Completely agree. The BMW plant in SC blows away all other plants I have been in. The investment in technology and attention to detail is astonishing. Believe me, my employer has been providing engineering services to the industry for 30 years.

coeur de maquis's picture

'When the car warz are over....last man standing will be.....'

Volkswagon!  And all of their other brands - Audi, Bentley, Bugatti, Lamborghini, Porsche, SEAT and Skoda...not bad...

 


arrowrod's picture

The first reports, from NGOs, on one vehicle, have caused this chitstorm (sp).

Yet, CARB and EPA were unaware.  After 50 years of testing, the government doesn't know how to test.

One could argue that "other" clever software takes advantage of government incompetence.

RaceToTheBottom's picture

A more interesting question is if the NSA will release the information of what other automobile manufacturers are using variants of the same software that VW was?  

And when will this NSA release be timed? 

FreedomGuy's picture

...and what are the favorite porn sites and styles of all the execs? That report is probably ready to go.

RopeADope's picture

We 'stabilized' our volatile emissions.

Ms No's picture

General economic literature often states that governments will always pander to those that can create jobs and industry out of necessity because they themselves cannot create true profitable industry.  It's starting to appear as though these guys don't give a shit.  Nero didn't give a shit either. 

Crtrvlt's picture

Boycott German products

From Siemens to VW there is corruption and scandals galore

Not to mention Germany has now destroyed Europe 3 times in a century

Other than insolvent Deutsche bank , the only way to hit them is to stop buying their products . It's that simple

Puma and adidas are some notable ones people may not know about
https://en.m.wikipedia.org/wiki/List_of_companies_of_Germany

Irishcyclist's picture

PUMA came in existence only after a family dispute at Adidas.

Lidl & Aldi are huge German pan-European brands.

Germany used be a leader in television and radio set manufacturing too. Brands like Grundig, Telefunken were world selling brands.

803Mastiff's picture

"The only thing new in the world is the history you don't know.". - Truman

When not if  the SHTF'd happens I'd feel a lot better in an uparmored  German Unimog with made in Germany Seimens solar panels on the roof and a pretty gal in a fraulein dress riding shotgun to keep me warm. Off to ALDI for groceries.

Gotta love the Bustenhalter

https://www.youtube.com/watch?v=cfPjMSLiBTg

harrybrown's picture

Crtrvlt Are you a zionist joo by any chance

Crtrvlt's picture

the jews aren't the only people Germany has harmed

are you a nazi? 

803Mastiff's picture

Something very odd about this VW situation. On one side it wreaks of a shakedown. On the other side from dealing with VW Corp I always thought it odd they didnt promote the Golf Diesel as a superior vehicle to the Pretentious Perius.

I_Am_'s picture

A steak through the heart??? 

.......recovery also sputtering after 6 months of ECB QE, a steak through the heart of Germany's most important industry, 

TalkToLind's picture

Germany must stop producing fuel efficient diesel cars!

That's right, we as American citizens must stand tall together to face one of our most urgent problems of modern time. 

overmedicatedundersexed's picture

fuck the .gov beaurocrats and shove the epa ..good on you vw.

Ms No's picture

Germany just needs to import a couple hundred thousand refugees to offset the impending job losses, it's working super well for America.

This monopoly/too big to fail ploy seems to be working really well also.  One company eats up a bunch of others and then becomes unassailable because it now encompasses too large of a portion of the industry and puts entire economies at risk.  We used to at least occasionally take these monsters apart. 

At least VW actually produces something of value, in the US we have medical industrial companies that never cure a thing, big banks and Monsanto.  Did Monstanto ever create anything of true value or did they monopolize an industry through strong arming and create toxic products?  If we try to take that beast a part they will probably try to starve us, I would rather have VW.

Lyman54's picture

Germany has been cranking out junk cars for the last 15 years at least.  Go on any owner report site and read the horror stories.  They make junk now.  Even BMW motorcycles have a lower reliability rating than Harleys now.  That took some doing.

Venice13's picture

Consumer Reports always downvotes German cars on reliabilty issues. I didn't know the BMW bikes are troublesome. I like old Beamers better.

flyonmywall's picture

Little known fact:

In the 1970s and early 80s, Chrysler built millions of K cars with a so-called "smog pump" attached to the back side of the engine, opposite the fan belt, on transversely mounted 4 cyl and some 6 cyl engines.

The only known function of the "smog pump" was to shove air into the exhaust system, and dilute out the emissions so that Chrysler cars could pass EPA emissions. Chrysler never actually bothered to spend money to engineer an actual emissions reduction system until the late 80's (They couldn't, they were bankrupt, and Uncle Sam bailed them out).

All they did was dilute out the sample so that their POS cars could pass emissions. This was just fine with the EPA and the California Air Resource Board (the smog Nazis).

VW just programmed their PCM to reduce emissions while the engines were idling or sitting at a certain RPM, which only happened during a smog test. While the car runs normally, they still have a catalytic converter, which does the bulk of the emissions reduction anyway. All they did was reduce the fuel added while smog testing.

Hell, VW is smart. That's reason enough for me to go out and buy one right now, while I can still get the good programming. Fuck the EPA and the environazis. (Note: I was at one point an environmentalist, but I've long since realized it's mostly just a convenient pack of lies, for more control over the plebes).

 

 

 

Lyman54's picture

Fly it is pretty obvious you know fuck all about cars.  Smog pumps were on almost every gasoline vehicle in north america for a while, not just K cars.

Not if_ But When's picture

If this works, we'll go after Airbus next.  That'll fix Boeing's competition problem and maybe we won't have to worry about the EX/IM Bank shitf*ck.

omi's picture

When times get tough, US will use any means to push out foreign companies from the market. They have essentially done it with banking - EU banks now serve US interests, rather than European.

Youri Carma's picture

Volkswagen Group sells Passenger Cars under the Audi, Bentley, Bugatti, Lamborghini, Porsche, SEAT, Škoda and Volkswagen marques;

Motorcycles under the Ducati brand;

Commercial Vehicles under the MAN, Scania, Neoplan and Volkswagen Commercial Vehicles marques.

https://en.wikipedia.org/wiki/Volkswagen_Group

flyonmywall's picture

Thanks Lyman54. You just made my point. Smog pumps were completely worthless in terms of actually getting rid of smog. They didn't affect the actual smog producing part of the car, the engine. Some smog pumps pumped air into the intake, so those did do a little something,as they were usually plumbed into the EGR system. But most did not do squat, especially once the EGR valve got a crapload of soot in it once the car got older.

Just because you are diluting something, does not mean you are actually getting rid of it. Heart of Fukushima lately? Just because the radiation is being spewed into the largest body of water on the planet, the Pacific ocean, doesn't mean that it's actually not doing any harm. It's doing a fuckload of harm, over a larger area.

Oh and yeah, I do know something about cars. I don't recall my Chevy's in the 80's having smog pumps. But then again, I did not own every single model.

Bryan's picture

Most German words have far too many letters in them.  Just thought I'd throw that out there.

 

Debugas's picture

actually i salute VW for doing what is good for customer - lower emissions shown when you go through control and more efficient driving (with higher pollution) when you need to drive

VW did exactly what a company should do - do what is good for their customer

Twaddlefree's picture

The word is "systemically." Look up the difference between systematic and systemic.