German Car Industry Is In Trouble Too

The American auto industry isn't the only one suffering. Reports that Germany is seeing a down turn have surfaced with 2009 projected to be a very difficult year for that nation's new car market.

Talk about the troubles for America's car industry is rampant, but the German automotive industry is taking its lumps too. Reuters is reporting that the German market is going through its worst slump since 1990 and expects the market to contract by 200,000 units in 2009.

Perhaps worse for Germany is that exports will also drop including those highly prized and profitable models such as the Audi A8, BMW 5-Series, and Mercedes S-Class. The United States market has been a boon to most German automakers, giving each company the bulk of their profits over the past decade. With Americans avoiding new cars at a record pace, the demand for German cars has dropped precipitously.

Not all of the news is gloomy as there are some rays of light shining in Germany. Most particularly, small cars are still selling quite well and are finding a market overseas. BMW subsidiary MINI and Mercedes subsidiary Smart are each doing quite well, showing that the bottom end of the market may not be as tough as once feared.

Volkswagen continues to do fairly well, especially abroad. Sales in the states are off just 2.1% for the year, the smallest decrease of any full line automaker. Volkswagen announced a few months back that they would build a production plant in Tennessee their first plant in the states since abandoning a Pennsylvania factory during the late 1980s.

Although the US government is studying offering assistance to General Motors, Ford and Chrysler the German government hasn't offered assistance to Volkswagen, Porsche, BMW and Daimler. Analysts are saying that this lack of help is exacerbating the problem in Germany and could lead to further erosion in production going forward.

Talk of consolidation in the German auto industry hasn't gotten beyond the “this could work” phase. Recently, BMW and Mercedes signed a historic parts sharing agreement to save on purchasing parts as well as sharing of certain components including engines and transmissions. Porsche is attempting to swallow up Volkswagen, but the sour economy has put that on hold at least for now.

2009 will likely be a tell all year for the German industry one that could force more cooperation between companies including project collaboration perhaps even a merger.

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