Frankfurt (AFP)

A pillar of German industry for decades, the automotive sector is now a heel of Archille, vulnerable to commercial conflict and poorly prepared for the future, at the risk of a heavy social record.

The health of the automotive sector is not as good as expected, says Marc Förstermann, EY expert, at the beginning of the Frankfurt Motor Show. "The technological and structural challenges are enormous."

In the first eight months of the year, automotive production fell 11% year on year, according to figures from the German manufacturers' federation, VDA.

The reason is the trade war, the economic slowdown and uncertainties around Brexit, at a time when manufacturers have to invest heavily in electricity.

"The effect on suppliers is very large, we start to see overcapacity," says Stefan Bratzel, director of the Center of Automotive Management.

A recent example, the Eisenmann family company, founded in 1951 and specialized in car lacquering machines, announced its insolvency at the end of July, threatening some 3,000 jobs.

In the second quarter, the operating profit of the three German manufacturers fell by 38%, much more than the global average of the sector (-18%), according to EY.

The auto sector accounts for one-fifth of the industry, nearly 5% of GDP and directly more than 800,000 jobs.

- Mittelstand threatened -

But indirectly, from chemistry to machine tools, several industries also blame the auto for stalling their quarterly results, fueling concerns over a possible recession in Europe's biggest economy.

In total, "industrial orders have, on average, declined by 1% each month since the beginning of the year," calculates Carsten Brzeski, economist at ING.

Among the most affected: the "Mittelstand", this dense network of small and medium-sized export companies, "hidden champions" considered for ten years as the key to German success.

Mittelstand's entrepreneurs' barometer of confidence went into negative territory in August for the first time in more than four years, according to a survey by KfW Bank and Ifo Institute; and several of these companies have recently announced job cuts or plant closures.

But their concern is far from being limited to the economic downturn.

Long before Washington's protectionist threats, Volkswagen inflicted a first blow on the industry in 2015, claiming to have equipped 11 million diesel cars with software capable of rigging emissions levels.

Since then, diesel has been losing popularity where it was invented: threatened by traffic bans in several cities, it is being replaced by gasoline and, increasingly, electric - a much simpler engine to build .

- Far right -

In total, electrification could cost 75,000 jobs in Germany, according to a study by the Frauenhofer Institute published last summer.

The giant Bosch justifies 600 job cuts by the decline of diesel and has announced more. "The company is not threatened because it has several activities," says Bratzel, but conversely, "the Mittelstand often lacks money to adapt."

"This is a concern for many small and medium-sized companies that were strong in the old sectors, such as combustion engines," says the expert.

At the end of June in Berlin, tens of thousands of protesters called for a "fair" digital and ecological transformation for workers at the IG Metall union's appeal.

The future of diesel is such a delicate subject for both employees and motorists that almost the entire political class has tried to prevent traffic bans imposed by the courts.

The extreme right-wing party Alternative for Germany (AfD), in particular, has made the defense of this motorization one of its hobby horses, and this political movement has made a remarkable breakthrough in works councils of the automobile.

But it is also in one of the bastions of the AfD, in Zwickau in the state-region of Saxony, that Volkswagen launches its electric shift: the production of the first model "zero-emission" of the manufacturer will begin there in November.

With 1.2 billion euros of investment, Zwickau will become "the largest electric car factory in Europe", according to Volkswagen, so the biggest bet on the success of this engine.

© 2019 AFP