As the table opposite shows, Germany is now easily the biggest single source of cars for our market, having overtaken the UK in 2003.
It is also way ahead of any other country: although Spain has done well as a source of small cars, it is a distant second.
In fact, the reason that Germany is up is that the UK is down. As both Ford and GM cut back on their British operations, with the ending of car production in Dagenham and Luton, their German plants took up much of the slack.
With both Ford and GM having their European headquarters in Germany, this appears to support the British unions’ contention that British satellites are sacrificed to defend headquarters’ factories.
However, the reality is more complex – and a lot more threatening to Germany. Volkswagen, as the largest domestic volume brand, is not only making war-like noises about cutting costs, it is finally taking action. Whereas VW’s idea of cost-cutting in the Nineties was to cut budgets in foreign subsidiaries, it now appreciates that Wolfsburg has to come into the 21st century.
As with most car companies, each VW plant is having to justify future investment and the company has just announced that the new Golf-based Scirocco will be manufactured in Portugal, even though the Golf itself comes mostly from Germany. VW also wants Wolfsburg to end its 28.8 hour week in favour of a 35 hour week at no extra cost.
The trade union tartly replied that savings on wage costs were no use if VW simply wasted the savings on ill-conceived product planning.
The problem with VW’s plans is that moving production out of Wolfsburg makes the plant steadily less competitive as unit costs go up – it becomes a vicious circle of lower production and higher costs.
What really frightens VW is the thought that it could go the way of GM and Ford in the USA – a company saddled with a hopelessly unrealistic cost base that is being marginalized by Asian competition. It is also warning that Western Europe could go the way of Detroit – at least as far as car production is concerned.
Headquarters would still be in Germany (or France, for that matter), but a large proportion of production would go to cheaper countries. Such a development is not inevitable, but many Western European factories need to reduce their cost base to remain competitive.
Ironically, Britain is in a better position to survive such a development than most. With more than two-thirds of our production coming from either the ultra-efficient Japanese transplant factories or the transformed Mini plant, there is no immediate prospect of this country losing most of its car production capacity.
The advantage of being the first into a wrenching change is that you are also the first to come out of it.
UK sales by country
The rise in German penetration is obvious, but most other countries appear relatively stable.
However, this is the calm before the storm. With factories opening in Eastern Europe (particularly Slovakia), the German slice of the pie will steadily be eroded by ‘Others’ over the coming years.
Ironically, it is the other successful country (Spain) that is now almost as worried as Germany: it no longer looks like a low-cost country and is physically further away from key markets than most Eastern European countries.