The German automobile industry is on the brink of fundamental change. Digitization, driverless cars and electric vehicles will shake up the entire industry. Handelsblatt publisher Gabor Steingart discussed the new challenges with the chief executives of the three largest German car companies at the Handelsblatt auto summit in Munich. Harald Krüger (BMW), Matthias Müller (Volkswagen) and Dieter Zetsche (Daimler) say German manufacturers can handle the transformation.
Handelsblatt: We have just experienced a momentous night, with the election of Donald Trump. Mr. Zetsche, what were your first thoughts when you heard about the outcome of the election?
Mr. Zetsche: After the Brexit decision, I was certainly forewarned not to trust the latest opinion polls. Still, I didn’t expect this outcome. In every election, the campaign is harsher than what actually happens afterwards. I hope and believe that this will also apply in the present case. We need to wait and see what actual steps can be expected. A certain amount of skepticism is appropriate after this election campaign, but we’re ready for surprises.
Mr. Krüger, BMW has a strong presence in the United States. What are your concrete expectations? Will the Transatlantic Trade and Investment Partnership (TTIP) survive this new president?
Mr. Krüger: It’s still much too early to evaluate that today. We will have to wait and see what President Trump’s foreign and economic policy will look like. But we need open world trade and the free exchange of goods. We sell the vehicles produced in our U.S. plant in South Carolina all over the world. Another important question is what happens next in the NAFTA region, especially between the United States and Mexico. All German automakers already have plants in Mexico, or are currently developing them.
Volkswagen also wants to grow again in the United States. What is your assessment of the election outcome?
Mr. Müller: Of course, we are in a unique situation in the United States at the moment. We have been working closely with U.S. authorities throughout the year, and now we are of course interested in wrapping things up soon. That’s why we are anxious to see what happens to staff at government agencies.
Is it possible that these negotiations can still be brought to a close with the current administration?
Mr. Müller: I hope so. We have come a long way in the process. But of course I am not familiar with the U.S. Justice Department’s schedule. Let’s wait and see what the next few days will bring.
Have there been any initial reactions from your employees in the United States? Cries for help, or a need for consolation?
Mr. Müller: Well, it isn’t quite that bad. But I agree with Mr. Zetsche in saying we did not expect this outcome. The polling had indicated a different result. What is most surprising is how definitely Mr. Trump ended up winning the election. We have to adjust to every new political situation, and we’re used to it. Brexit is another current example of that.
Have your heard from your employees in the United States, Mr. Krüger?
Mr. Krüger: Of course, we discussed this issue at length ahead of the election. The election of Donald Trump is another example of the growing volatility with which we are confronted. Unexpected things happen every day. We need to be capable of reacting flexibly to volatility. This capability is one of the strengths of German industry.
China is our next topic. It’s an enormous market that is extremely important for all automakers. But there is also a new self-confidence there. The Chinese don’t want to be viewed merely as a market. What happens there next?
Mr. Zetsche: I’m actually surprised there is still no large Chinese global corporation, after about 20 years. But it will happen. It is more than understandable that the Chinese government is also encouraging this development. The United States is also creating favorable conditions for its own manufacturers, and there is nothing reprehensible about that.
Is Geely’s Lynk & Co a car brand we will be seeing in Europe soon?
Mr. Zetsche: Geely has certainly made some progress, especially with SUVs and inexpensive electric vehicles. Of course, that’s also the strategic thinking. The Chinese want to move quickly to the top in the electric vehicle market, and in doing so they are leapfrogging the entire internal combustion engine issue. This is a huge market from which we all benefit. But it also involves a certain amount of give and take. Quotas, to the detriment of European manufacturers, for example, would spell the end of market-driven principles.
But the new tone is also coming from the German government and Economy Minister Sigmar Gabriel, who made self-assured German demands during his last trip to China. Mr. Krüger, what is your assessment of the German-Chinese relationship?
Mr. Krüger: It’s good. I participated in the last German-Chinese government consultations with Chancellor Angela Merkel. China only does that sort of thing with Germany. There is no other country in the world with which the government in Beijing maintains such close communication. For us, China continues to be a market with potential, because a strong middle class is taking shape there. Besides, the country is also very interested in the subject of digitization, which they are working on just as assiduously as they are in Silicon Valley.
Volkswagen is a pioneer in China. The Wolfsburg-based company has been there since the 1980s. Will you adhere to the additional investments you had planned in China?
Mr. Müller: I can clearly answer that question in the affirmative, because of our good experiences in China. We are currently in talks about another, third joint venture, which could focus on inexpensive electric vehicles.
Your industry is on the brink of major changes. Electric cars, the shared economy, connectivity and driverless cars will become increasingly important. Mr. Zetsche, what are your priorities?
Mr. Zetsche: There is one issue that we cannot properly assess yet today: the interplay among these four fundamental changes. This is incredibly exciting but it also leads to a high degree of insecurity. The question now is: Who will best be able to advance all the things we are planning to do? It will probably be another 10 years before we see the ultimate outcome.
Electro-mobility is still in its infancy. But will it truly become as important as everyone is claiming? Isn’t the whole thing just a lot of hype?
Mr. Krüger: It’s definitely not hype. Electro-mobility will come, and has to come. We will not achieve the goal of reducing carbon dioxide emissions in 2020 without electro-mobility. On the other hand, we will still have to invest enormous sums to improve internal combustion engines, because they will still exist in 2030. In other words, the transition to electro-mobility is a marathon, not a sprint.
Herr Müller, the name of your company, Volkswagen, means the car of the people. What are the people saying about battery-powered drives? What is your assessment of customer behavior?
Mr. Müller: The public’s confidence in electro-mobility will grow, and the market will develop. In anticipation of that, we are in the process of shifting our development budgets toward electro-mobility. Especially in Germany, customers are still reacting very hesitantly today. This is probably because of the lack of infrastructure, high costs and the poor range of electric vehicles. But this will change dramatically in the next three to four years, and we will see this reflected among customers. Electric cars are the wave of the future.
The battery is the key issue. When will Volkswagen reach a decision on developing its own factory?
Mr. Müller: It will be made this year. Throughout November, we will be deciding on the investment budget for the next five years. Of course, the relevant investments will then be taken into account.
Where do you see the range of electric cars?
Mr. Müller: At 500 to 600 kilometers.
Are you only building a battery plant in Germany? Will it create new jobs?
Mr. Müller: The first one will likely be in Germany. There won’t be tens of thousands of new jobs, since these plants are highly automated. But you do address an important issue: We also need to think responsibly about the people in our factories when we consider the transition phase from internal combustion engines to electro-mobility.
Mr. Krüger: The concept behind it is pretty simple. Battery production has to be close to vehicle production. No one wants to fly heavy batteries around the world, which would entail immense logistics costs. That means these battery factories will be needed worldwide, always near vehicle production and on all continents, tailored to the specific cars. Each manufacturer will build its own battery plants. Other solutions could also make sense for manufacturing the precursor product, the battery cell.
Do we know how many jobs will be lost as a result of automotive transformation?
Mr. Zetsche: That’s a pointless discussion. Every plant manager knows exactly how many jobs there are in his factory. The important thing is that we have to give our employees an outlook for the future. But it is also clear that we will not be able to preserve each individual job.
“We aren't afraid, and we certainly have respect for a company like Tesla.”
Is Silicon Valley a nemesis, Mr. Müller? Or is just an inflated, illusory giant?
Mr. Müller: We aren’t afraid, and we certainly have respect for a company such as Tesla. Of course, the economic results leave something to be desired. No one would accept such high losses from us.
Mr. Zetsche: We cannot hide behind the argument that none of this would work, anyway. We are talking about the future here, and therefore big changes are possible. On the other hand, we cannot hide behind our own performance, either. Germany is home to 1 percent of the world’s population. Germany car companies represent 20 percent of world automobile production. That’s why I am very optimistic that we will survive this challenge.
Mr. Müller, your company has been dealing with the diesel scandal for the last year. Where do we stand at the moment?
Mr. Müller: We have made a lot of progress in Europe on the technical solution for the vehicles in question. The KBA for all displacement categories of the EA189 engine has now been approved. This means the processing of affected vehicles can continue to pick up speed. In other words, we are very pleased with the way things are going. As far as the United States is concerned, we are in very constructive talks with the authorities, which is why we are very confident that a comprehensive settlement will soon emerge. Of course, we also hope the reserves of more than €18 billion ($19.6 billion) formed to date will cover all the costs. The important thing is that we achieve planning certainty for the future. Once all of this is complete we can generate a new spirit of optimism.
Could electrification and digitization mean that the cars of the future will be very similar?
Mr. Müller: The results of the latest studies on electric vehicles by Mercedes, VW and BMW varied widely. In other words, our designers came up with some ideas, but they still face significant challenges. It will be important for the new control elements for connectivity and driverless cars to work easily and intuitively. This is a challenge for the entire industry.
Mr. Zetsche: I think there is also another issue: How hard do we make it for customers to buy our cars? I believe the industry still has a lot of catching up to do here. There are other industries that are much better at this.
Our last question: If the industry is changing so fundamentally, won’t it require a new management culture at your companies?
Mr. Müller: Change will not succeed without changes to our culture. This will take some time in our company, with its 600,000 employees. It simply isn’t enough to stand at the plant gates with a megaphone and announce that big changes are coming. This is an intensive process, and top management needs to set an example, one that extends to middle management, which often portrays itself as a bed of clay, and down to ordinary employees.
Does middle management have to be removed?
Mr. Müller: I don’t know. In my view, it’s much more important to transform a centrally designed company into a decentralized one. This is why we are giving the brands and regions more autonomy.
Mr. Krüger: It won’t work without constant development of the corporate culture. This includes trust, mutual appreciation, openness and transparency. Some 400 top executives in our company have already trained worldwide, and another 13,000 managers will receive training next year. Without cultural change, we will not be able to inject the necessary higher speed into the organization. The whole thing will take three to four years.
And at your company, Mr. Zetsche?
Mr. Zetsche: We have turned the process around. We now want our employees to provide the impulses for the process of change. This approach generates much more energy and enthusiasm. I believe this has created a different quality of change. We are certainly very pleased with our approach.
Mr. Krüger, Mr. Müller, Mr. Zetsche, thank you for this interview.
Gabor Steingart is the publisher of Handelsblatt. To contact the author: email@example.com