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A Closer Look At The Euphoria In The German Automobile Industry

A Closer Look At The Euphoria In The German Automobile Industry
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Article: A Closer Look At The Euphoria In The German Automobile Industry

The German economy is still booming – a fact that might appear surreal to most other European states that are still dealing with the remnants of the financial crisis. In the last couple of weeks, Germany’s economists have become even more optimistic about the country’s economic development.

Especially the automobile industry’s big players released impressive figures. Almost all of the companies were able to achieve record sales in 2011. However, German newspapers were particularly euphoric about the bonuses the companies granted to their employees as a result of the very successful previous year. Daimler, VW, and BMW were only a few of the companies that made the headlines. Most of the companies paid their employees a sum of approximately 6,000 GBP.

However, one should take a closer to look at the market as the situation in the German car industry is not as rosy as it first may seem. The automobile industry, for example, is in danger of entirely missing out on the trend of electric cars. Even though the current numbers might be excellent, this might have negative effects for the future. Even German newspapers warned that even other German industries are missing out on the trend. As this article shows, the German battery industry is also not seizing the opportunities the trend of electric cars might offer. Moreover, the economic situation in Germany is not as flawless as statistics are trying to make us believe. For instance, there were reports saying that Germans were buying a high number of new cars. However, according to media reports published one earlier in 2012, a considerable amount of cars were bought by cars salesmen themselves, who sold them shortly as much cheaper second hand cars. It seems the people would not have purchased the cars otherwise.

Also, not all manufacturers are solely making good news. Porsche was among the players that gave thanks to their employees by paying out bonuses – even though the economic situation of Porsche is a bit more complicated. Although Porsche was able to achieve record-sales as well, its profit was rather marginal. As a matter of fact, Porsche came within an inch of operating in the red. Given that the Porsche holding has two competitive brands – the Volkswagen AG and the Porsche AG – this might appear surprising to an outsider. Indeed, the disappointing figures are not the result of Porsche’s business performance, but rather of strategic decisions about its future. So, what are the reasons for the disappointing numbers?

It was especially the failed merger of VW and Porsche that caused Porsche’s problems. Both parties had already agreed on put and call options, but the fusion had to be cancelled due to lawsuits filed by Porsche’s investors against the company. However, the options had to be accounted, which lead to anomalies in Porsche’s books. Because of that, the Porsche Holding only managed to generate a surplus of 50 million GBP although both Volkswagen and the Porsche AG generated around 4 billion GBP. Given this financial disaster, one question remains: Why did Porsche still decide to grant Bonuses to its employees?

This decision was probably based on the assumption that a withholding of payments would have been a disastrous signal towards analysts – and indirectly also towards investors. Admittedly, both do not have any interest in bonuses for employees. It is more about the psychological effect that such a decision would have had in the midst of Germany’s economic boom. An article that was published in SPIEGEL ONLINE shows this very well. As it only reports about the fact that even the cooks at Porsche receive bonuses, the reader gets the impression that the manufacturer is currently not facing any problems at all. From this perspective, Porsche had no other choice than paying bonuses. At the same time, Opel and Ford received bad press in the newspapers as their difficult situations did not allow the companies to pay bonuses. At the end, it is all a question of psychology.

These examples show that one needs to take a closer look at the issues that may shape the future of Germany’s car industry. The current figures should not fool observers about the lack of innovation in the industry and the effects of bad management. Even though both aspects do not currently affect the automobile industry at the moment, they might very well do so in the near future – for instance, when electric cars finally become mainstream.

Source: carsbiz.net

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