Germany’s automotive industry, long regarded as the engine of Europe’s industrial economy, is losing ground as global rivals pull ahead and structural weaknesses weigh on one of the country’s most important sectors.
New figures from consultancy EY show that German carmakers recorded the weakest sales performance among major automotive nations in the first quarter of 2026.
While US manufacturers increased profits by 83 per cent year-on-year, German groups saw earnings fall by 23 per cent, according to EY’s analysis of the world’s 19 largest automotive companies.
The figures highlight the growing pressure on German industry from intensifying global competition, high domestic production costs, shrinking market share in China, and a slower-than-expected transition to electric vehicles.
The German’s challenge is combined by a broader slowdown across the global automotive sector.
Europe’s largest carmakers Volkswagen and Stellantis have called for subsidies to keep carmaking in the EU as they struggle with challenges from US tariffs to Chinese competition. https://t.co/42DEd1MEdM
— Brussels Signal (@brusselssignal) February 5, 2026
Average operating margins fell from 5.3 per cent to 3.5 per cent in the first quarter, marking the industry’s second-lowest profitability level in a decade.
For German manufacturers, the decline has been fast. The combined margin of BMW, Mercedes-Benz and Volkswagen dropped to 4.6 per cent, down from 5.7 per cent a year ago and well below the 13.2 per cent they achieved in early 2022.
“The crisis is far from over, especially for German car manufacturers,” warned Constantin M. Gall, EY’s Global Aerospace, Defence and Mobility Industry Practice Leader.
Among the world’s most profitable carmakers, Japan’s Suzuki topped the ranking with a margin of 10.9 per cent, ahead of General Motors at 9.4 per cent and South Korea’s Kia at 7.5 per cent.
The report shows that China, once the industry’s most reliable source of growth, has become one of its biggest challenges.
Sales among the Western carmakers surveyed by EY fell by 11 per cent in the Chinese market during the first quarter with German manufacturers recording a 16 per cent decline.
“From cash cow to problem child: China remains one of the biggest problems for German corporations,” Gall said.
According to EY, premium European brands are being squeezed by weaker Chinese consumer demand while domestic Chinese manufacturers continue to dominate the rapidly expanding electric vehicle market.
Chinese consumers are also increasingly opting for local brands, leaving Western manufacturers struggling to maintain relevance.
At the same time, Germany’s domestic cost base has become a growing handicap. High energy prices, labour costs and regulatory burdens, combined with heavy spending on software and electrification, are squeezing margins.
“The cost structure in Germany is no longer competitive,” Gall argued.
“Production is significantly cheaper elsewhere thanks to lower labour costs, lower energy prices, higher productivity and additional government support.”
German technology group ZF Friedrichshafen has reported a net loss after tax of €2.1 billion for fiscal 2025, almost doubling the €1.02 billion deficit recorded in 2024.https://t.co/5lgFqCm3Hm
— Brussels Signal (@brusselssignal) March 19, 2026
With no rapid recovery in sight, German carmakers are stepping up restructuring efforts.
Companies are cutting jobs, increasing automation, relocating production and exploring alternative uses for manufacturing facilities.
In some cases, automotive plants are even being considered for conversion to defence production as Europe expands its military-industrial capacity.
Europe’s biggest carmaker, Volkswagen Group, has presented dismal 2025 annual results.
Today, the company – which includes brands such as VW, Audi, Porsche, Seat and Skoda – announced it will cut 50,000 jobs in Germany until 2030 to regain efficiency. https://t.co/GaRExTKcqV
— Brussels Signal (@brusselssignal) March 10, 2026
