Automotive SMEs: More than one in three companies plans to shift investments abroad

The 24th SME Day of the Association of the Automotive Industry (VDA) opened today in Bonn. Under the title "Strengthening locations and suppliers: Artificial intelligence as a driver of transformation", the two-day conference will address topics such as the use of artificial intelligence in production and supply chains. On the first day of the conference, Hendrik Wüst, Prime Minister of North Rhine-Westphalia, will also give a keynote speech.

VDA President Hildegard Müller said at the opening of the SME Day: "The transformation and the increasing international competition are placing particular demands on medium-sized automotive companies. Every day I am impressed by how they are meeting the challenges and with what innovative strength, determination and high investments they are driving the change to climate-neutral and increasingly digital mobility. This makes it all the more important that companies are supported by the right political framework and strengthened in international competition. But Berlin and Brussels have done too little so far: regulation alone is not policy. An active industrial strategy is needed, including also an active trade policy."

In her speech, Müller also addressed the results of a current survey that the VDA has been conducting regularly since spring 2020 among automotive suppliers (Manufacturer Group III) and medium-sized manufacturers of trailers, bodies and buses (Manufacturer Group II).*

In the survey, a good eight out of ten companies (82%) said they were postponing, relocating or even cancelling planned investments in Germany. More than one in three companies (37%) are planning to relocate investments abroad. The relocation destinations are other EU countries, Asia and North America (in that order). A further 13% are planning to cancel investments. Only 1% of companies said they wanted to increase their investments in Germany in view of the current situation.

Müller: "More and more medium-sized automotive companies are planning to relocate investments abroad. For Berlin, this development must be both a warning signal and a wake-up call. The federal government must ensure that the industrial network that makes Germany a business location is not damaged. 'Less talk, more consistent action' must be the motto. Competitive energy prices, fast planning and approval procedures, a competitive tax and levy system - the list of tasks is long."

The proportion of companies suffering from a shortage of skilled workers and labor remains high (68%). 52% of companies say they are having difficulty meeting their short- and medium-term demand for skilled workers. To meet these challenges, companies are primarily relying on their own training. While a good quarter of companies (26%) say they are meeting their demand for skilled workers through the labor market, 45% rely primarily on training to meet the skilled workers they need.

Last but not least, the transformation of the automotive industry towards climate neutrality and digitalization causes jobs to be cut despite a shortage of skilled workers and labor. In the survey, around half of the companies surveyed (45%) said they are currently cutting jobs in Germany. In contrast, 16% said they are increasing jobs, and in 38% of companies, employment figures are remaining constant. The VDA will examine the effects of the transformation on employment in the automotive industry in a detailed scientific study that is expected to be published in October this year.

Red tape still #1 challenge
83.3% of the companies surveyed said they were heavily or very heavily burdened by bureaucracy. This makes it the top challenge for medium-sized automotive companies - as was the case in the last survey in October 2023. It also shows that this figure was never higher in any of the previous surveys.

Arndt G. Kirchhoff, Chairman of the Advisory Board of the KIRCHHOFF Group and Vice President of the VDA: "In terms of bureaucracy, medium-sized automotive companies are at their absolute limit, but more and more is being placed on companies. Politics must finally take countermeasures here. In addition, measures to reduce bureaucracy must also take industrial medium-sized companies into account to a much greater extent than before."

In the current survey, 86% of companies stated that they did not expect any relief for themselves as a result of the Bureaucracy Reduction Act introduced by the federal government.

"The planned bureaucracy reduction law falls far short of expectations, particularly when it comes to reducing reporting and information obligations. This is particularly disappointing for small and medium-sized businesses. In addition, reducing bureaucracy will only be successful if new, complex requirements, reporting, proof and documentation obligations are also dispensed with," Müller emphasized.

In addition to taxes and duties (65%), high electricity prices continue to place a strong or very strong burden on companies (62%). Every second company (50%) stated that it was strongly or even very strongly challenged by gas prices.

Companies also value the advantages of Germany as a business location. In their view, the main arguments in favour of Germany as a business location are the industrial network, the dual training system, the infrastructure and the political stability.

Further survey results: 80% of companies believe that the EU's trade policy does not contribute to the well-being of industrial SMEs. In addition, 82% expect increasing trade conflicts to have a negative impact on their company.

"Free and fair trade is crucial for prosperity and employment, especially for an export nation like Germany. In our industry, around 70% of jobs depend on exports. But far too little progress is being made on free trade agreements. The EU and the German government must be clearer and more determined in their commitment to open markets. The EU finally needs an active agenda for free and fair trade and more pragmatism and flexibility in the negotiations of free trade and investment agreements. A strong network of agreements is a prerequisite for maintaining economic strength and prosperity, diversifying supply chains, securing raw material and energy supplies, and reducing strategic dependencies. Only a strong and export-capable industry will be able to master the major challenges of the green and digital transformation," the VDA President said.

Müller continued: "Despite all the criticism of many European decisions, one thing is clear: Europe is indispensable - for peace and security, as a guarantor of prosperity, as a single market. The decisive factor is that we need a relevant and creative EU. Above all, Brussels must realise that economic strength is the prerequisite for global climate and geopolitics in the European sense. Only as a global economic power we can communicate on an equal footing with other regions of the world, act confidently and represent our interests effectively."

The survey also shows that the potential of artificial intelligence and machine learning is being recognized: 36% of companies are already using artificial intelligence, and a further 41% are planning to use it in the foreseeable future. The technologies are used primarily in production and quality assurance. The main obstacles to faster and deeper entry into the technology are a lack of skilled personnel and the high investment costs, coupled with limited financial resources/limited access to financing.

"At this year's VDA SME Day, the topics of artificial intelligence, machine learning and data strategies are high on the agenda, because their use in production and supply chains also holds great potential for the automotive SME sector. More and more companies are recognizing this potential and exploiting it. The exchange and discussion within the industry on this topic are extremely important and valuable," said Kirchhoff, who will hand over the office of Chairman of the VDA SME Forum to Isabelle Kirschbaum-Rupf, shareholder and member of the management of the Rupf Industries Group and member of the VDA Board of Directors, as part of the VDA SME Day.

Further results of the VDA survey: While 22% of companies expect their situation to improve this year, 24% expect it to worsen. 54% expect a sideways movement.

The weak overall economic development is not leaving the automotive supply industry unscathed: investment activity in Germany is currently being affected primarily by the sales situation/sales expectations. Of the companies whose investment activity is affected, 41% stated that this was the greatest impact.

*The survey was conducted from May 3 to May 16. 143 companies took part. This means that the VDA has representative statements on the current situation and prospects of the automotive industry.