A recent survey conducted by the German Association of the Automotive Industry (VDA) has revealed growing concerns among medium-sized automotive companies regarding investment activity, bureaucracy, energy costs, and the impact of US tariff policies.
The findings paint a concerning picture of a sector struggling with multiple challenges, with significant implications for Germany’s economic landscape.
Declining investment in Germany
The survey, conducted among automotive suppliers and manufacturers of trailers, bodies, and buses, shows that investment activity in Germany continues to decline. Alarmingly, 75% of companies reported postponing, relocating, or entirely cancelling planned investments in the country. This marks a sharp increase from October 2024, when 69% of companies reported similar actions.
Further highlighting this trend, 29% of companies are shifting investments abroad, compared to 23% in October. Another 14% plan to cancel investments entirely, while only a mere 1% of companies intend to increase investment in Germany.
The primary reasons behind this retreat in investment are high labour costs (58%) and an unfavourable sales outlook for the German and European automotive markets (56%). As market growth is occurring elsewhere, the justification for expansion within Germany is waning, leading companies to look abroad for better opportunities.
Pessimism about 2025
The outlook for 2025 remains bleak among surveyed companies. Compared to last October, when 17% of companies anticipated an improvement in business conditions, only 13% now hold such optimism. Meanwhile, 43% expect their economic situation to deteriorate this year, while 45% foresee conditions remaining unchanged.
Bureaucracy: the biggest obstacle to growth
Excessive bureaucracy remains the top challenge for medium-sized automotive companies, with 90% of respondents reporting that they are heavily or very heavily burdened by regulatory requirements. Furthermore, 93% of companies believe that reducing bureaucracy should be a top priority for the next federal government.
Bureaucracy is also directly impacting investment activity, as 50% of companies stated that regulatory density negatively affects their willingness to invest in Germany.
VDA President Hildegard Müller emphasised the urgent need for action, stating:
“In terms of bureaucracy, the supplier industry, and especially the numerous medium-sized companies in the German automotive industry, has long since exceeded its limits of stress and pain – things cannot and must not continue like this. Genuine, consistent bureaucracy reduction must be at the top of the agenda of a new federal government.”
Energy costs weigh heavily on competitiveness
Germany’s high energy costs continue to be a major locational disadvantage. According to the survey, 61% of companies are heavily or very heavily burdened by electricity prices, while 50% are similarly affected by gas prices. Additionally, 75% of companies cite high taxes and duties as a significant burden.
To alleviate these challenges, 79% of companies support policies aimed at reducing energy costs. Other areas of concern include easing reporting requirements (78%), reducing labour costs (69%), and cutting taxes and duties (65%).
Müller stressed the urgency of these issues, warning that Germany’s business competitiveness is deteriorating in the face of intensifying global competition: “As international competition between locations intensifies and geopolitical pressure continues to grow, the competitiveness of Germany as a business location is eroding – this is having a particularly noticeable impact on small and medium-sized enterprises. However, this challenging situation has remained politically inconsequential for far too long. The program of a new federal government and the coalition negotiations must therefore be: We need an ambitious program for locational attractiveness and competitiveness with concrete reforms.
“Given the rapidly changing global situation and the diverse global challenges, politicians in Berlin must focus on everything that creates growth. After all, economic strength is the foundation and basis for overcoming the diverse global challenges and being able to survive in the long term,” Müller emphasised.
US tariff policies stir concerns
The survey also highlights growing uncertainty regarding US trade policies. A significant 86% of companies expect to be affected by US tariffs targeting various global regions, with 54% anticipating indirect impacts through supply chains and customers, and 32% seeing themselves directly affected.
Of those affected, 57% expect a negative impact on sales and profits, while 25% fear disruptions to supply chains. Additionally, 17% are considering relocating production facilities as a response to potential trade restrictions. This uncertainty is forcing companies to reevaluate their strategic planning and risk management approaches.
Employment cuts reflect economic uncertainty
The survey also indicates a worrying trend in employment within the industry. While 41% of companies report difficulties in securing skilled labour, this figure remains significantly lower than in previous years (85% in Spring 2023).
However, more concerning is the trend of job cuts. More than half (56%) of companies are currently reducing employment in Germany, a slight increase from 54% in October. Only 11% of companies are expanding their workforce.
Urgent action needed
The VDA survey underscores the increasing pressure on the German government to take decisive action to retain investments and support the automotive sector. Addressing bureaucratic inefficiencies, reducing energy costs, and enhancing the country’s overall business climate must be key priorities for the next federal administration.
Without immediate and concrete reforms, the exodus of investments and job losses in the automotive sector could accelerate, posing significant risks to Germany’s economic stability and long-term industrial strength.
