The centerpiece of Mercedes-Benz’s 140th birthday party in January was a patent application filed in 1886 by an engineer named Carl Benz for a “vehicle with gas engine.”
The way Mercedes executives spoke of the handwritten document, which at once point was projected on a large wall on the company campus in Stuttgart, Germany, it might have been a sacred parchment. It not only certifies that Germany is the birthplace of the automobile but also helps explain why the woes of the country’s automakers — Volkswagen, Mercedes and BMW — are a threat to more than just the German economy and the livelihoods of thousands of workers.
The carmakers’ woes also threaten the national identity, rattling a fragile governing coalition and fueling support for far-right politicians.
Germany’s automakers are struggling under the weight of American tariffs, Chinese competition and a rocky transition to electric vehicles. The gravity of the situation became clear this summer as Volkswagen executives discussed closing factories, canceling models and culling tens of thousands of jobs.
The crisis raises questions about whether the German approach of balancing profits with job security by, among other things, giving workers a strong voice in management is capable of adapting to breathtaking technological change. Chinese carmakers churn out new models in 18 months or less, a fraction of the time most Western carmakers take.
Along with chemicals and machinery, autos are “one of three sources of German strength rooted in the 19th century in areas where German engineers made great strides,” said Holger Schmieding, chief economist at Berenberg Bank.
When the industry is changing rapidly, “German labor relations are a hindrance,” Mr. Schmieding said. “A modest downsizing you can discuss with your workers. When it’s a dramatic shift, that’s more difficult.”
Ola Källenius, the chief executive of Mercedes, said Germany still possessed the skills that had allowed Mercedes, BMW and Volkswagen’s Audi and Porsche units to dominate the high end of the market.
Speaking in January when the company unveiled the latest version of its top-of-the-line S-Class sedan, he said the car “has German origins, spirit, DNA, engineering skills, precision, quality thinking.”
But he added that the design was the product of “a global team.” And he said the country was hurt by high energy costs and taxes as well as rules that made it difficult to lay off workers.
“There’s a lot that needs to be done in Germany to improve competitiveness — or, I should rather say, Europe,” Mr. Källenius said in an interview at the company’s headquarters in Stuttgart.
When German companies expand or build factories, it is often in places like Hungary, China or Mexico. The number of cars produced in Germany has fallen 28 percent since 2016, according to the VDA, the German automakers’ association, putting the country well behind China, the United States, Japan and India. Germany could soon also be overtaken by South Korea and Mexico.
U.S. automakers may soon face similar challenges. For now, General Motors and Ford Motor are protected from Chinese competition by tariffs. But “we can’t expect to keep them out forever,” William Clay Ford Jr., the executive chair of Ford, said at an Axios event this month in Washington.
The German carmakers face an assault on two fronts. In China — the world’s largest car market — sales of foreign car brands are plummeting. And Chinese automakers are making big strides in Europe. In June, Chinese carmakers outsold Japanese carmakers in Western Europe for the first time, according to figures compiled by Schmidt Automotive Research.
China was once a lucrative market for the Germans, accounting for 37 percent of Volkswagen sales in 2019. But after Chinese automakers learned how to manufacture cars through joint ventures with foreign carmakers, the tables turned.
BAIC Group, an automaker owned by the Chinese government, has become Mercedes’s largest shareholder, with a stake of almost 10 percent. Chinese companies like BYD and Geely Auto were quicker to develop electric vehicles that were heavily promoted by the Chinese government and are selling briskly in Europe.
The Germans took too long to offer appealing electric vehicles. Volkswagen sold 26 percent fewer cars in China in the first six months of the year compared with a year earlier, while Mercedes reported a 28 percent decline and BMW a 20 percent slump.
“Despite better products, we cannot match the cost and pricing of export models from China,” Oliver Blume, the Volkswagen chief executive, told employees this month.
Mr. Blume expressed doubt that Volkswagen factories in four German cities were competitive, though he said there might be ways to avoid closing them by, for example, converting them for use by the defense industry.
Volkswagen’s labor representatives agreed in 2024 to cull 50,000 people from the company’s work force by 2030, through retirement and buyouts. With 657,000 employees worldwide, the company still has 50,000 more people than it needs, Mr. Blume said.
Making such deep cuts is especially difficult at Volkswagen.
Workers at the company, as is the case for all three German carmakers, hold half the 20 seats on the supervisory board, in line with the country’s laws. The boards oversee top management and can fire the chief executive. Shareholders also have 10 seats and name the chair, who can exercise a tiebreaking vote.
But what’s unique at Volkswagen is that two of the shareholder seats are held by the State of Lower Saxony, which owns 20 percent of the company’s voting stock. The state, home to Volkswagen’s headquarters in Wolfsburg, almost always takes the side of workers.
Olaf Lies, the prime minister of Lower Saxony and one of the state’s representatives on the Volkswagen board, said in a statement that he would not agree to any plan “that depends on factory closures as a supposedly simple solution.”
Historically, Volkswagen and its workers have found compromises in times of crisis, but cooperation has been strained recently.
“There is already an enormous loss of trust amongst the work force in the man who, in his early days as C.E.O., presented himself everywhere as ‘Olli’ and a ‘local lad,’” the Volkswagen Works Council, which represents workers, said of Mr. Blume in a statement.
Candidates for the far-right Alternative for Germany have seized on the industry’s woes, promising to usher in a return to a heyday of German manufacturing. The appeal has helped the party attract voters in parts of Western Germany where the AfD is generally much weaker than in areas that were once part of Eastern Germany.
The far left has also tried to exploit the crisis. This month, members of the German Marxist-Leninist Party distributed pamphlets outside the gates of an Audi factory in Neckarsulm, in southwest Germany, calling on workers to strike.
The center-right chancellor, Friedrich Merz, has linked the industry’s problems directly to China. He promised to work with France and the rest of Europe to push back against the Chinese imports. The French carmakers Renault and Peugeot, owned by Stellantis, face similar problems.
“We are doing everything to stabilize the automotive industry again,” Mr. Merz said in an interview this month with the public broadcaster ZDF. “At the moment, that is the most difficult sector in Germany.”
Automakers often complain that Chinese companies have an unfair advantage because they receive subsidies from their government. But Chinese automakers are also adept at equipping cars with features like rotating screens, fast-charging batteries and advanced self-driving systems at lower costs than Western carmakers.
Much of the auto industry’s malaise “is due to wrong decisions and arrogance” in addition to increased competition from China, said Thorsten Benner, the director of the Global Public Policy Institute in Berlin.
Jörn Buss, a German who is head of Americas for the automotive and manufacturing group at the consulting firm Arthur D. Little, noted that Chinese companies also had problems. They lose money or earn modest profits because there are dozens of carmakers in China. Most of those companies have been making cars for only a few years, which means nobody knows if those vehicles will turn out to be reliable or durable.
“They haven’t made the errors yet that all the other guys have learned from over 50 years,” Mr. Buss said.
The Germans still excel in at least one area: lavish marketing events. The party in Stuttgart celebrating Mercedes’s 140th birthday culminated in the unveiling of the S-Class sedan, which is made in Germany.
The car debuted in a livestreamed show featuring laser lights, drone cameras, a digital John Lennon and the real-life Roger Federer. It comes with an A.I.-powered screen the size of a small windshield, a glowing hood ornament and heated seatbelts.
But the seatbelts became a sort of national joke in German media, mocked as an example of how Mercedes is falling behind on the whiz-bang innovations the Chinese have become so good at.
“These German companies will survive,” said Tom Narayan, lead autos analyst at RBC Capital Markets. “But they will likely be smaller companies than they are today.”
Theresa Rauffmann contributed reporting from Neckarsulm, Germany.
