How Long Can Germany Keep Auto Jobs?

So far, Germany's auto industry has escaped massive job losses, but major cuts could soon be on the cards

By Moira Herbst

The recession has caused a dent in global auto sales, but German automakers have avoided mass layoffs. In part, that's because the German government subsidizes workers whose hours have been trimmed through a program called Kurzarbeit, or "short work." A successful cash-for-clunkers program, which has just finished, also sheltered the industry.

But how long before Germany's blue-collar workers head for the unemployment lines? The signs don't look good. If demand doesn't return to pre-recession levels soon, many German automakers will likely begin making large layoffs. Analysts reckon up to 10% of the workforce could face the chop, while others will have to learn new skills to cope with the changes to the automotive sector. "Employment in the auto industry in Germany has peaked," says Ferdinand Dudenhöffer, director of the Center for Automotive Research at the University of Duisburg-Essen. "[Job losses] will come, and workers will have to find possibilities in other industries."

The likelihood of mass layoffs could increase under Germany's newly elected center-right government. On Sept. 27, Chancellor Angela Merkel won national elections and will now form a coalition with the pro-business Free Democratic Party, which wants to make it easier for German companies to dismiss workers. Analysts warn the auto industry could become a main target.

Changing Market

Even before the recent election, autoworker job cuts already were under way. Dudenhöffer says 2007 marked the high for auto employment in Germany, with about 750,000 jobs split between producers and suppliers. About 30,000 jobs have been lost in the past two years, and a further 70,000 could go by 2015.

"Government support will run out eventually," says Ian Greer, professor of economics at the University of Leeds in Britain. "Either the employer starts paying full wages at that point or, more likely without a strong recovery, there will be mass layoffs."

Changing consumer habits underpin the pending job cuts. Michelle Krebs, senior analyst at auto Web site Edmunds.com, says German manufacturers must make the painful adjustment to making fewer expensive premium cars, which generate fat profit margins. The global recession has forced many consumers to downgrade to cheaper, more fuel-efficient, and smaller cars, which offer automakers less lucrative returns. "People want cheaper and smaller cars," says Krebs. "That will inevitably affect the bottom line, which speaks to job loss."

Aware of the changing market dynamics, German union IG Metall, which represents many in the country's auto industry, is now calling on the government to further strengthen employee rights with a campaign called Gemeinsam für ein gutes Leben, or "Together for a good life." The union's plan includes creating a national minimum wage and increasing protection for older workers. The union regularly holds rallies nationwide with tens of thousands of workers to bolster popular support.

Blue-to-White-Collar Shift

Indeed, the pressures on the industry—and on its workers—are great. Many German carmakers are suffering from excess production capacity despite shrinking demand. "In three to five years, automakers will be struggling with large structural problems, primarily excess capacity," says Peter Kaiser, senior analyst at the economic consulting firm Prognos in Bremen.

If more manufacturing jobs head overseas, the German auto industry could shift gears to take advantage of the country's continued strength in design and engineering.

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