Germany's Car Industry the First Term Paper

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However, German producers expect the markets in other countries to become like theirs, but there is very little chance that this will ever happen, since the customers will not agree with the premium cars' high costs, and the demand for this kind of cars is likely to decrease.

The German producers' orientation seems to be in disharmony with the customers' needs. For example, they develop fast and powerful vehicles that can easily reach 125 mph, but the speed limit in many areas is 55 mph. This will cause a shift in the demand, the customers will orient towards less powerful cars that cost less. Drivers nowadays are facing many restrictions and they are also much more aware and preoccupied of the environment than they were a decade ago, and the new direction that car demand is taking now proves it.

Buyers' choice is now influenced by other factors also, such as tax incentives that are meant de shift the demand away from emissions-heavy cars. For example, in London, the traffic-congestion charge's area has been extended, but environmentally friendly vehicles are exempted. Also in London, the resident-parking permits' cost will be established according to the car's engine size. In Germany, a tax based on the cars' level of emissions is likely to be proposed. This is how the customers' behavior will be influenced, and the demand and supply will go through important changes.

Another very important issue for the German producers is that they do not have an alternative to fossil-fuel engine. In order to solve this problem and to create a new alternative for the German customers in the first place, BMW, General Motors and Honda have teamed up, working on a joint project for the hydrogen tanks needed for fuel-cell engines. BMW has produced Hydrogen 7, a totally clean car, able to reach 230 kph and travel 200 km with only on tank of fuel. But this does not mean that the end of their problems has arrived, as only five filling stations across Germany are able to provide the necessary super-cooled liquid hydrogen, therefore, it must run on petrol too.

DaimlerChrysler and Audi are more environment preoccupied, since they are the world leaders in clean-diesel technology.

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Their clean diesel is made out of fossil fuel or out of bio sources. This alternative seems to be more efficient than any other power source, which guarantees its success for de future coming decades.

The demand is also oriented towards budget cars. Low-cost cars like Dacia Renault's Logan or Volkswagen's Skoda are dealing with an increasing demand. DaimlerChrysler's Smart model's sales are doing very well since it has been associated with Mercedes.

Also, German producers should start outsourcing to Eastern Europe, which would have a positive effect on the production costs, and therefore on the final price. Production cost are reduced due to the low wages level and the proximity to the big west European markets, although the cost of logistics is two or three times higher then for cars built in western Europe.

So, the demand for the German vehicles produced in the present will decrease, since the customers' demanded products will not be in harmony with those offered by the producers. Customers are now oriented towards low-cost cars, that use efficient, alternative fuels. German producers will surely be able to adapt to these challenges, it is only a matter of time before they do.

Reference List

Germany's car industry: The big-car problem. Germany produces some of the fastest and most luxurious cars in the world, but is that yesterday's game? (22 Feb 2007).….....

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