Global presence steers German car market Heinrich Baumann has no doubts about the benefits to his company from the strengths of Germany's big car manufacturers. "Our company's success would have been unthinkable without the success of our customers - and most of our biggest customers are German," says the chief operating officer of Eberspächer, a big maker of vehicle exhaust systems based in Stuttgart. Car production in Europe Eberspächer is one of hundreds of sizeable automotive component businesses in Germany that count among their key advantages their close links with the country's top vehicle manufacturers, led by Volkswagen Group, BMW and Daimler. This year, plants in Germany are expected to make nearly half of all the cars produced in western Europe, compared with 30 per cent in 2000, with the big car producers based in the country showing a better financial performance than rivals in the rest of the continent. At Porsche's sprawling plant near Stuttgart, the production lines are humming as the factory's 6,500 workers put the finishing touches to its range of 911 sport cars that retail for $100,000 or more. Asked to explain the relative success of Porsche and other German carmakers, Bernhard Maier, Porsche's sales and marketing director, says: "Speaking just for my company, we've invested in style, quality and also in the brand. It's difficult for people to look [at the idea of buying] a luxury sports car without considering Porsche. The relatively good performance of automotive factories in Germany, which as well as being run by the big German producers also include plants owned by Ford and General Motors of the US, stand in contrast to the broader difficulties of the European car industry. Car demand across Europe was severely dented by the 2007-08 financial implosion and has failed to recover. Partly as a result, the number of cars and light trucks made in the whole of Europe, including Turkey and the former communist bloc, are expected this year to be 8 per cent down compared with 2000. Western Europe is the worst affected region, with a much more significant drop of 29 per cent, from 16.5m units in 2000 to 11.7m this year. Against this sombre trend, vehicle plants based in Germany have performed well. The number of vehicles coming off production lines in Germany this year is expected to be 5.4m, some 500,000 more than the 4.9m manufactured in 2000. One strength of the German car producers is their strong global presence. Last year, Porsche, which only produces cars in Germany, sold its products in more than 120 countries, with roughly two-thirds of revenues coming from outside Europe. They [VW, BMW and Daimler]are very good at managing their businesses. But they often make their operations over-complex Allan Rushworth, chief operating officer, European operations, Hyundai However, reflecting the rise of car manufacturing in China and other emerging economies over the past 15 years, German factories" share of all the cars produced in the world has declined slightly, from 9 per cent in 2000 to an expected 7 per cent this year. Another aspect to the performance of the German carmakers is that they have compensated for the reduced importance of Europe by increasing their operations in plants outside the continent. In 2007, two out of every three VW cars were made at a European factory, but this year the comparable number will be less than half, according to projections from the LMC automotive consultancy. The VW group includes the core VW brand of vehicles made in northern Germany, together with other businesses including Porsche and Bavaria-based Audi. Even though they operate on a global basis, with factories dotted around the world, the big three auto businesses base their engineering and production strengths on their manufacturing operations at home. Here they have been helped by improved labour competitiveness, resulting from relatively muted wage awards over the past decade. In 2002, an automotive worker in France was, on average, paid 24 per cent less per hour than his or her German counterpart, according to data from Wards Auto consultancy. However, by 2011 this gap had narrowed to just 2 per cent. The German-based auto companies have also invested heavily in improving production efficiencies and boosting their technology capabilities in fields from engine management systems to lightweight steel bodies. Erich Hauser, an analyst at Credit Suisse, says the German companies have exploited the strengths of "made in Germany" to burnish their credentials as makers of upmarket or "premium" vehicles. "VW, BMW and Daimler have all marketed themselves very well," he says. Not everyone is unambiguously positive. Allan Rushworth, chief operating officer for the European operations of the South Korean carmaker Hyundai, says of his German competitors: "They [VW, BMW and Daimler] are very good at managing their businesses. But they often make their operations over-complex. Mr Rushworth criticises, for instance, the large number of product variants offered by the German carmakers, which, he says, pushes up costs. He adds that by simplifying the development part of their operations, the companies could greatly cut the time needed to introduce new models. Also, notwithstanding the gains made by the big three German car companies, Philippe Houchois, of UBS, says the future is by no means assured. The companies could, he says, be forced to accelerate new product development and cut costs in an effort to hold on to market share, not just globally but in key markets in Europe where economic difficulties could linger for some time.