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German car industry calls for European policy to counter US subsidies

An Audi Q3 on an assembly line in China
China is becoming an Achilles heel for the German car industry, which relies heavily on the country’s rapidly growing middle class for sales © REUTERS

Germany’s car industry has called for a European industrial policy to counter the US green subsidy regime in order to ensure the sector’s future relevance in the region.

Hildegard Müller, president of the German car lobby VDA, on Wednesday called on both Brussels and Berlin to ensure that policies intended to protect the environment were also safeguarding the competitiveness of European industry.

“The USA has recognised what they have to do for their [country] — Germany and Europe must do the same”, she said, in reference to the US Inflation Reduction Act, which includes $369bn of subsidies for green technologies and has sparked controversy in Europe.

She described the IRA as a “wake-up call” for European regulators, arguing that the policy was a “protectionist and discriminatory regulatory approach that is at odds with open trade”.

“The European answer to the many deglobalisation scenarios must be a clear reglobalisation agenda,” she said. As an example, she suggested the creation of a European agency that focused on the supply of strategic raw materials.

Müller’s comments came the day after Belgium’s prime minister accused the US of an “aggressive” campaign to lure European companies to the other side of the Atlantic with its new $369bn green subsidy act.

The president of the VDA, which counts Volkswagen, BMW and Mercedes-Benz as members, said she was fearing an exodus of German small and midsized suppliers. A recent survey carried out by the organisation had shown that 22 per cent wanted to invest abroad, while 53 per cent of SME suppliers were postponing or even cancelling investments.

“Only a successful transformation — for the climate, people and the economy — will be copied worldwide,” the former politician said, adding that the pandemic, war in Ukraine and subsequent energy crisis had shown that “our previous economic model is no longer an automatic guarantee of prosperity”.

“Ignoring the warning signals of the increasing burden of increased energy prices . . . is more than negligent,” Müller said.

New estimates published by the VDA showed it expected the global passenger car market to grow 4 per cent to 72mn units in 2023, which would still be far below the 80.9mn cars produced the year before the pandemic.

The German market was expected to reach 2.7mn cars, a level still a quarter smaller than in 2019. China, meanwhile, surpassed pre-coronavirus levels last year and were expected to reach 23.7mn in 2023.

China is becoming an Achilles heel for the German car industry, which is heavily reliant on the country’s rapidly growing middle class for sales, amid concern that Germany may once again become too dependent on an autocratic state.

Every third car made by a German manufacturer is sold in China, according to the VDA. Carmakers such as VW, BMW and Mercedes manufacture and sell many more cars in China than in Germany.

This article has been amended to clarify what VDA called for