Digitalization and AI are key elements of the transformation process in the automotive and supplier industry. Shaping them and integrating them into companies’ internal business processes is one of the success factors for the future role of this industry. In addition to internal company developments and competencies, the shaping of external framework conditions by the state, associations and trade unions is also essential.
Things could hardly have been much worse for our domestic automotive industry. The transformation process towards decarbonization and digitalization brought about by climate change and technical innovation would have been far enough to force the automotive and supplier industry into a process of change the likes of which it has not seen since the 1970s. To make matters worse, this process is being flanked by far-reaching political upheavals such as the war in Ukraine or increased self-confidence in the global South, with corresponding consequences for the markets, as well as economic conditions such as increased raw material and energy prices, disrupted supply chains and more difficult financing conditions due to higher interest rates worldwide.
If you look at the product portfolio of our German OEMs, you can get the impression from the large number of new models in the e-segment that they are on the right track and are overcoming the challenges in a dynamically changing market environment with varying degrees of success. This is not least due to targeted government support for the sales financing of e-vehicles, which is reflected in growing market shares, at least in the German registration statistics. While the financial results of the OEMs in the recent past were highly positive, a development is now emerging that is characterized by heavy burdens on investments, especially in the area of battery technology, production capacities and, last but not least, employment.
In contrast to the OEMs, the suppliers have to reinvent themselves in many cases and completely change their product range without being able to benefit from government sales subsidies. This applies in particular to companies that have previously concentrated on combustion technology and the classic powertrain. Without being able to fall back on in-house resources such as OEMs, they have to develop new technologies, particularly in the areas of digitalization, battery technology and AI, and are dependent on an influx of expertise from outside.
Influencing factors that are only partially at the disposal of the supplier industry are important here. These include, in particular, access to technology, the digital infrastructure, the availability of qualified specialists and, last but not least, the political environment, including trade union positions.
One example of the issue of technology access is the fact that the five leading manufacturers in the rapidly growing AI segment – alongside well-known names such as Nvidia and Intel – are all based in the USA.
The situation is not much different in battery technology, where production is concentrated in China, Japan and South Korea. This is all the more serious as the battery unit in electric vehicles accounts for around 20 percent of the value added. Consequently, all OEMs are investing in battery cell production in order to reduce dependencies in the future and shorten supply chains. However, it is also a fact that the technological development potential of battery cells can be classified as high. Battery cells will have to become more powerful, ranges will be extended and charging times will be shortened. Their weight will be reduced and their production will have to be organized as a circular economy that takes into account disposal aspects and issues of raw material recovery. If the supplier industry does not want to be left behind, it must participate in this development process and focus its production methods and products on this technology. It is unlikely that countries such as the USA, China, South Korea or Japan will voluntarily relinquish their technological lead. This makes it all the more urgent to invest massively in research and development – both in companies and in universities and colleges – in order to catch up with the competition and occupy these fields with new technological developments. This will be one of the prerequisites for regaining a leading global position in the automotive market.
Another fundamental prerequisite for the use of AI in the transportation of the future is a nationwide digital infrastructure. The new 5G network will create the basis for the digitalization of transport by 2025 at the latest, and Germany is among the top five countries internationally in terms of the expansion of digital infrastructure. However, it is becoming increasingly apparent that the problem lies not in the existence of a digital infrastructure, but in its use. In a study of the factory equipment sector – a key supplier sector for the automotive industry – the Karlsruhe-based Fraunhofer Institute IOSB came to the conclusion that small and medium-sized companies in particular are reluctant to adopt digital technologies and are slow to implement them in next-generation machines, systems and components. There are reservations above all when it comes to networking and data exchange. The reason for this reluctance is primarily the lack of digital expertise in companies and the lack of qualifications of existing employees. In contrast to OEMs, SMEs are dependent on building up these skills through new employees from an almost empty labor market.
It is almost a truism that the transformation to a decarbonized transport world goes hand in hand with a reduction in industrial employment and a simultaneous expansion in the area of new technologies that were previously unoccupied in our industrial landscape.
Although the decline in employment may not seem so significant for a transitional period in view of the parallel production structures of classic combustion and electric vehicles, the plans of OEMs and major suppliers speak for themselves. The production of e-vehicles is less employment-intensive and the industrial adjustment is already in full swing, as evidenced by the announcement of the first plant closures – such as that of Ford in Saarlouis.
However, companies find themselves in a dilemma, as they have to reduce the quantity of their workforce while at the same time improving its quality with regard to the use of digital components. Traditional adjustment instruments such as social plans and reconciliation of interests fail in the face of this issue, as they are based exclusively on social selection criteria and leave little room for qualitative aspects. The trade unions’ insistence on employment guarantees issued in the past under completely different framework conditions is also understandable from the point of view of association interests, but is of little help for the future interests of companies. It creates the illusion that the transformation process can be managed with the existing workforce through qualification measures. The example of SMEs, which are dependent on an influx of skills from outside, shows that this does not work.
In view of the changed requirements for occupations and activities resulting from the transformation, IG Metall believes that employers and the state are solely responsible. The possibility of collectively negotiating such qualification processes, in which the individual obligation to adapt qualifications could also be regulated, is completely negated in all official statements. But without a distribution of interests and allocation in the qualification of employees, the process will not be manageable. It is undisputed among experts that the qualitative management of digitalization cannot be achieved by adapting existing training curricula. The dynamic digital development requires employees to be permanently prepared to develop new skills in a process of continuous learning. Illusions do not help here. They only feed unrealistic hopes among employees that the transformation will have no individual consequences.
In this context, IG Metall’s demand for a four-day week and a further reduction in working hours to 32 hours per week with full wage compensation is completely counterproductive. One of the reasons given for these demands is to prevent further job losses – which is incomprehensible in view of the existing shortage of skilled workers.
Even the 35-hour week pushed through by IG Metall in the mid-1980s was justified with the demand to prevent job losses. Whether this was successful is still disputed among economists today. However, the basis of the agreement at the time seems to have been forgotten. It was based on the agreement that individual working time and company working time would be separated from each other. This decoupling opened up considerable innovation potential for employers through the unrestricted use of capital employed, which at least partially compensated for the cost disadvantages of the 35-hour week.
However, we are miles away from such an option today. According to a study by the German Chamber of Industry and Commerce, German industry’s willingness to innovate has fallen to its lowest level since 2008. The reason for this is not a lack of ideas in terms of technologies or products, but primarily the shortage of skilled workers, which is restricting companies in their ability to innovate.
These are alarm signals that could hinder, if not stop, a positive development. According to a study by the Capgemini Research Institute, Germany ranks third in an eight-country comparison of the extensive use of AI in the automotive industry with 12%, behind the USA with 25% and the UK with 14%. Compared to 2017, the proportion of automotive companies using AI in Germany only grew by one percentage point. In the same period, growth was seven percentage points in the USA, five percentage points in the UK and four percentage points in China.
This trend should give everyone involved pause for thought. We must create a positive, supplier industry if we want to continue to play a role in the concert of global car manufacturers in the future.
Author: Armin Gehl, Managing Director of autoregion e.V., Saarbrücken
