The German automotive industry is currently experiencing a significant downturn, as evidenced by the latest Business Climate Index from the Institute for Economic Research Ifo. In October, the index fell to -27.7 points, a decline from -23.4 points in September, highlighting the ongoing challenges within the sector. Anita Wölfl, an Ifo industry expert, attributes this decline to intensifying competition, particularly from outside Europe, which is exerting substantial pressure on the German automotive industry.
The current business situation has been assessed as significantly worse by companies, with the indicator dropping to -27.5 points from -14.5 points in the previous month. This sharp decline underscores the difficulties faced by the industry as it grapples with both domestic and international challenges. Despite these setbacks, there is a glimmer of hope as companies appear less pessimistic about future prospects. The business expectations indicator rose to -27.9 points in October, up from -31.8 points in September, suggesting a cautious optimism about the months ahead.
A major concern for the industry is the severe lack of orders, both domestically and internationally. A staggering 44.3% of companies in the automotive sector are reporting an order shortage, the highest level recorded since July 2020. This shortage is further exacerbated by reports of declining sales and job cuts at both manufacturers and suppliers. Export expectations have also deteriorated significantly, with the indicator falling to -32.8 points, a level not seen since the first wave of the coronavirus pandemic in spring 2020. These figures highlight the multifaceted challenges faced by the industry amid high production costs and fierce global competition.
Volkswagen, a leading player in the sector, has already adjusted its forecast for 2024, citing a challenging market environment that has not met initial expectations. The company now expects to deliver around 9 million vehicles to customers by the end of the year, a decrease from 9.24 million in 2023. Despite these challenges, Volkswagen's CFO, Arnaud Antlitz, noted a significant increase in orders in Western Europe during the third quarter, which could provide a positive boost for the fourth quarter. This increase is seen as evidence of the strengthening of the company's product line, offering some optimism amid the broader industry challenges.
Other major automotive companies are also navigating these turbulent times with strategic adaptations. Audi Group, a part of Volkswagen, is flexibly adapting its production based on market demand and has secured long-term contracts with steel suppliers to ensure stable operations. This strategic approach highlights the importance of supply chain security and adaptability in maintaining competitiveness. Meanwhile, Mercedes-Benz Group managed to deliver stable sales in the third quarter, despite facing challenges such as transitioning to new products and fierce competition, particularly in China. The company acknowledges the uncertainty surrounding the economic situation and automotive market developments, emphasizing the need for strategic foresight and adaptability.
Renault Group has reported a modest revenue increase of 0.8% year-on-year in the first nine months of the year, reaching €37.7 billion. The company maintains a solid order book in Europe, which promises a strong fourth quarter. This resilience underscores Renault's ability to navigate the challenging market environment and capitalize on its strategic positioning in Europe. Skoda Auto is defying the general trend, with deliveries in the first nine months of the year increasing by 4.5% year-on-year, supported by a robust third quarter. This growth highlights Skoda's effective market strategies and its ability to leverage opportunities in a competitive landscape.
In response to the challenging environment, Volkswagen has called for a 10% pay cut for its employees. This strategic move aims to maintain the company's competitiveness, preserve jobs, and secure funds for future investments. It reflects the broader efforts within the German automotive industry to adapt and navigate the current crisis while positioning itself for future growth and stability. The industry is at a critical juncture, requiring innovative strategies and collaborative efforts to overcome the challenges posed by global competition and economic pressures.
