Germany’s automotive industry continues to face a challenging outlook, marked by overcapacity, weak demand, and the threat of new tariffs from the United States. According to international credit insurer Atradius, the sector has yet to reach the bottom of its downturn. Jens Stobbe, Manager of Risk Services at Atradius, warns that without substantial restructuring, manufacturers and suppliers alike risk deeper financial distress. Following a post-pandemic rebound that saw automotive production in Germany rise by 13.1% in 2023, the industry has entered a renewed decline. Production fell by 5.7% in 2024, with forecasts indicating further drops of 5.0% in 2025 and 2.6% in 2026. While large manufacturers can currently withstand this period of weak performance thanks to previously built-up financial reserves, Atradius cautions that these buffers are thinning rapidly. Cost-cutting measures such as reduced working hours and salary reductions have so far been used to limit the damage, but Stobbe argues that these are temporary fixes. A more fundamental transformation is necessary. Many plants are operating well below capacity, and some may need to be closed permanently to restore profitability—a move that could be politically difficult but economically unavoidable. In 2024, the German automotive sector lost 19,000 jobs, and Atradius anticipates a similar number of job cuts in 2025. The wider European market offers little relief: after a 5.1% decline in production across the EU last year, a further contraction of 3.7% is expected this year, followed by only a modest recovery of 0.4% in 2026. With consumer spending under pressure, new car sales are unlikely to rebound soon. Suppliers are particularly vulnerable in this environment. Dependent on the production volumes and payment terms of carmakers, many now face eroding margins, rising payment delays, and growing insolvency risks. These challenges are most evident in Germany, Italy, and the UK, where Atradius notes deteriorating financial conditions. The ongoing shift from internal combustion engines to electric drivetrains adds further pressure. Many Tier 2 and Tier 3 suppliers lack the technological or financial means to adapt to this transition and may be forced out of the market. “This could result in an exodus of suppliers over the coming years,” Stobbe warns. Geopolitical risks are also mounting. The imposition of US tariffs on EU automotive exports poses a serious threat, especially to Germany and Italy, whose automotive sectors—and their supply chains in countries like Czechia and Slovakia—rely heavily on US sales. In 2023, the US accounted for 20% of the EU’s automotive export value. Atradius estimates that German and Italian car exports could fall by more than 5% in 2025 due to these tariffs. Efforts to redirect exports to alternative markets are unlikely to fully offset the loss. European manufacturers face significant obstacles including differing consumer preferences, logistics challenges, and stiff competition from established players in Asia. One of the most pressing competitive threats comes from Chinese electric vehicle (EV) manufacturers, who have established a strong advantage by offering more affordable models and demonstrating greater agility in addressing technical issues and market shifts. European producers will need to accelerate the development and launch of EVs in the lower and mid-price segments to remain competitive. In the short term, European manufacturers may find some relief from punitive tariffs imposed on Chinese EV imports, but Atradius emphasizes that long-term survival will depend on a strategic overhaul of the industry. Without structural changes and renewed competitiveness, Germany’s flagship sector faces a protracted period of decline.