German car makers pledge to maintain R&D

“We have to keep the investments in research and development at a high level, while the sales figures remain depressed this year and probably in the coming year, too,” Matthias Wissmann, President of the industry association Verband der Automobilindustrie (VDA), told his members at the 20th Automobile Forum in Stuttgart last month.

But he warned, “This will tend to lead to higher costs per unit. Therefore companies have not only to maintain their lead in innovation, but at the same time also to optimise their cost structures in order to remain competitive. This is going to increase the pressure in the industry even further.”

Indeed, even at Opel, there’s not much talk about slashed R&D budgets following its sale by a stricken General Motors to Canadian auto parts supplier Magna – backed by Russia’s biggest lender, Sberbank.

Frank Stronach, the head of Magna, sees a return to profit for Opel in 2011, and has said the company will invest 7 per cent of profits in research.

Eckehart Rotter, chief spokesman for the VDA, told ScienceBusiness that he expects the overall amount of German industry investment in R&D to remain constant in 2009 at roughly €18.9 billion, the amount invested in 2008.

A main driver of continued investment is the need to develop automobiles that are more climate-friendly, in response to stricter government regulations in the US, Europe and Japan. This includes technologies to lower fuel consumption and emissions, and continued research into electrical cars and biofuels.

The bosses of Germany’s large automakers have been vocal about their intent to keep up the rates of R&D investment despite the downturn and global consolidation of the industry. In January at the Detroit motor show, Dieter Zetsche, the head of Daimler AG, said, “We won’t put our long-term success on the line with short-term budget cuts. That’s why our R&D budget is one of the largest in the automotive industry, and we intend to keep it that way.”

His company began partnering at the start of the year with energy and chemicals company Evonik to make storage cells for automobile batteries. A few months later, Daimler bought a stake in the Silicon-Valley electric car startup Tesla Motors. The two companies plan to share knowledge to develop battery systems and electrical drives, among other projects.

Experts See More R&D Partnerships and Development-Driven Mergers

Partnering deals like Daimler’s are indeed what experts see on the cards for the automotive industry worldwide as it faces cutbacks, steeper competition and the clear need to keep technological advancements rolling off the assembly lines.

In Germany, arch rivals BMW and Daimler have been in talks about sharing motor technology. Discussions were broken off but industry experts, such as Ferdinand Dudenhoeffer of the University of Duisburg, say sooner or later they will have to work together. “I can imagine that a BMW will be built on a Mercedes production line and vice versa.”

And Porsche linked up with Volkswagen partly because its future development costs would be too high to finance on its own.

The same goes for automotive suppliers, which produce 70 to 80 per cent of the components of each vehicle. Many over-stretched suppliers have already folded or been snapped up by competitors after falling victim to the liquidity crunch in capital markets. As they sort through the rubble, R&D departments are being combined or consolidated. Despite the carnage, the VDA maintains impact on overall R&D spend will be minimal -at least for 2009.

The automobile industry is the largest investor in R&D in Germany, with one third of all R&D investment in the manufacturing industry, far ahead of the second place electronics and information technology sector.

Rotter seems very confident about the prospects for the German automobile market, particularly given all the negative news reports. The introduction of so-called scrappage schemes, in which consumers are given subsidies to buy new cars, means the German market has held up well. Unit sales of new cars in Europe were down 12.3 per cent in April. Switzerland was down 20 per cent, the UK’s market declined by 24 per cent and Spain dropped 46 per cent. In Germany, however, new car registrations were up 19 per cent.

And the export market seems to be improving. In May, VW, BMW and Porsche were able to slow the decline in unit sales in the US, but sales were still down compared to the same month last year. VW decreased by 12.4 per cent, BMW lost 27.6 per cent and Porsche’s unit sales declined by 29 per cent in May 2009.

So scrappage has boosted sales of new – particularly small – cars for now, but the worry must be that the market will crash when funding runs out in 2010. Given this backdrop, a decline in R&D spending in Germany may just be delayed.

Still, Rotter may be right with his rosy predictions. German automakers are trying to position themselves as innovators in the market for fuel-efficient and clean-energy cars. In Detroit, BMW exhibited the two hybrid models it expects to put into production this year: its 7-series hybrid concept and the X6. And Daimler showed its hybrid version of the S-class for the first time at a Shanghai motor show in spring.

As Wissmann concluded in his speech last month, “However difficult times are, I am convinced that this industry will emerge from the crisis stronger than others because we are staying on course – despite the severe headwind – and are consistently pursuing our innovation strategy. There will not be any cuts in research and development.”