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Journal number 2 ∘ Günter Hofbauer
Hazard Analysis of the German Car Manufacturing Industry and Related Business Eco Systems

https://doi.org/10.56079/20222/10 

 

 

         Hazards and risks can endanger business systems and corresponding business eco systems (BES) in an existence-threatening way. Different reasons may cause technological changes, but stake holders should have a clear road map and strategy to guide through times of change and consider carefully the consequences. It is a matter of fact, that all industries are driven by changes in technologies, business models, processes, constellations, and systems. An appropriate response is a mandatory requirement for companies to survive. Innovativeness is the basis for competitiveness, profitability and sustainability of companies and corresponding industries.

         The car manufacturing industry is one of the most important industries in Germany and contributes about 12 percent to German GDP. This industry is a driving force for economic growth, employment and sustainability. This situation is endangered by various hazards and the German auto industry in particular shows strong signals, which indicate a radical technological and structural change. The hazard analysis points out an aggregate of threats and challenges for the business model and corresponding BES of the auto industry in Germany.

         The underlying thesis of this paper assumes that the existing business model is threatened. The question of research examines the influencing factors on the current business eco systems (BES) in this industry. The hazard analysis will disclose the various and complex impact factors. The transformation of the entire business system is inevitable due to the findings.

         Methodologically, theoretical, analytical and empirical approaches are used. Research on selected literature aligned at current national and international guidelines leads to a stable basis for the research. Statistical data, topical literature, surveys, and logical conclusions will lead to justified arguments.

Keywords: Business system, Business eco system (BES), Car manufacturing industry, STEP-analysis, Hazard analysis

JEL Codes:  L91, M21, O14

Introduction 

         Existing business models are threatened by new technologies, because a radical change is accompanied with innovations, new features, changing utilization, new possibilities but also change in mind (Hofbauer&Sangl, 2017). These new technologies cause structural changes and heavy impacts on existing business relations and practiced eco systems. These changes generate disturbances within the relevant eco systems and have impacts to the whole economy.

         The BES in the sense of this study includes manufacturers, suppliers, sales channels, customers, competitors and other parties involved in upstream and downstream activities through collaboration and competition as well. A BES is a network of companies working together in a coordinated way in order to generate value through division of labor in common value chains. The total value created by a BES is higher than the sum of values of the companies on a stand-alone basis (Jacobides et al, 2018). Each member of an eco system affects and is affected by the actions and reactions of the other participants of the system (Williamson & De Meyer, 2020). In this case of research, the company orchestrating the whole process of value creation is the respective car manufacturer. In case that the car manufacturer has problems, the related BES will instantly have problems, too. For many decades the business model of producing and selling cars was a stable and profitable business. All corresponding business eco systems (BES) worked very well and they have balanced each other for the benefit of all. The BES were balanced in all directions between all the car manufacturers, suppliers and related activities along the value chain. The existing competitive advantages especially for German brands provided high margins and concomitant a remarkably increasing market capitalization. High growth rates and high rates of return attracted more competitors to enter this business.

         The actuality of the topic is that additionally, further hazards are coming up, which have the treat potential to tilt the business system and corresponding BES out of balance. The car manufacturing industry is challenged by digitalization and electrification, which push into the car manufacturing industry internally and threats from external, which are accelerated by restrictive legal regulations. More problems will arise, when technological change is combined with structural change from different origins and directions. It can be stated that besides the technological and structural change there are trade wars initiated by big players on governmental level, economic downturns in several industries in various countries, which affect purchasing power. There is also to be noticed that customers are uncertain about what technology to buy. In addition to that there is a broad skepticism about e-mobility, because the charging infrastructure is far behind demand. New technologies and radical change also attract new competitors.

         It has to be considered that the car manufacturing industry has a significant impact on German economy, employment, income for employees, tax generation and wealth of nation (Hofbauer, 2020). The share of this industry of the German GDP is 12,6%. There are currently still more than 810.000 people employed in this industry with a turnover of 378 bn EUR in 2020 (VDA, 2021a). The domestic production volume in Germany was about 5.120.000 units in 2019 and decreased by 24,7% in 2020 (VDA, 2021b).The underlying working hypotheses is that the business model of the car manufacturing industry and related BES in endangered by hazards. These hazards will be analyzed in general by a STEP-analysis (Blokdyk, 2018) of external impacts and subsequently by an assessment of internal impacts within the industry (Porter, 2008).The scientific purpose of this paper is to analyze the threats to the business system and interrelated BES in order to reveal and direct the imperative transformation process to a new level in order to retrieve competitiveness and profitability.

 

 

Results

         The results of the research include two aspects: firstly, the dependent variable representing the problem and secondly, the independent variables with impact on the dependent variable. This leads to the question of research: What are the impact factors causing the change and hazards for the business model?

 

Indication of the problem

         To start with, the current situation of the German car production industry has to be examined. In order to show the current situation of the industry, the domestic production volume of cars as the dependent variable serves as a strong and adequate indicator. This indicator represents economic factors like demand, employment, income for workers and employees, but also financial aspects for the companies like cash flows (CF), cash and cash equivalents (CCE), liquidity, profitability, dividends, reserves and sustainable finance for the auto makers (Hofbauer et al., 2017). Diagram 1 (VDA, 2021a; own graph) shows the domestic car production units from 2005 to 2020. The years 2017 to 2020 display the fundamental problem. Decreasing production and sales volumes show the empirical evidence. In 2019 worldwide sales volume decreased by 5 percent, in Germany however it fell by 8.9 percent. A dramatic fall had to be noticed in 2020. The domestic production volume dropped 24,7 percent due to covid-19 pandemic.

 

Domestic Car Production Units Germany 2005-2020

Diagram1

 

 

         The annual percentages of growth and decline of the German car production from 2005 until 2020 are shown in diagram 2 (own work), each year in comparison the previous year. It also points out that the big decline began in 2017 with a reduction of 1.8 percent, which was followed by a drop of 9.3 percent in 2018 and 8.9 percent in 2019 until finally the pandemic caused a big slump of 24.7 percent in 2020 (VDA, 2021a).

         It can be derived that the production volume was at a high level throughout the years 2005 to 2017. Except in 2009, due to the worldwide financial crisis there was a slump in the figures in 2009 to a level of 4.96 million cars. After the crisis the figures recovered and levelled off at a profitable level until the year 2017. In 2019 however, the production volume with 4.66 million units was on a lower level than in 2009.

 

 

Percentual Change to Previous Year Domestic Production Units Germany 2005-2020

Diagram 2