OM in the News: Disrupting the German Auto Supply Chain

Concern is rising in Europe’s automobile heartland about the economic impact of the industry’s move to electric vehicles from gasoline-powered cars, writes The Wall Street Journal (Aug. 16, 2019). Germany fears the country’s big car companies and rich ecosystem of suppliers is insufficiently prepared for the transition, and that their leadership may not be assured in an electric-car world. Assembling electric cars isn’t as complex or labor intensive as making traditional vehicles and relies partly on imported technology. And China has made rapid forays in electrification and is shaping up as a potentially formidable competitor in the field.

The trepidation is particularly acute in the city of Stuttgart, hub to one of the country’s biggest automotive clusters. The German auto industry employs 870,000 people nationwide, almost half in Stuttgart. They work at companies including Robert Bosch, piston-maker Mahle, and hundreds of smaller businesses that form the region’s auto supply chain. Trade union leaders fear that too few auto suppliers are taking steps to prepare for the huge changes that will come as the industry’s focus shifts even more toward electric vehicles.

And it isn’t just Germany. There are 309 automotive production and assembly plants across Europe, of which 72 are engine plants. The sector supports 13.8 million jobs in Europe, or 6% of total EU workforce and 11% of all manufacturing jobs.

The prediction is that fuel-powered cars will make up just 56% of new cars sold by 2030, down from 95% now. The biggest shift will be in Europe, where regulators are pushing tough restrictions on greenhouse-gas emissions.

Classroom discussion questions:

1. Is this an issue that will impact the U.S. auto industry heavily also?
2. What approaches should suppliers be taking?