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The flip-flopping trade policy imposed by US is hitting European auto sector heavily, further more making a dent to the European economy, particularly Germany’s economic growth, which is as the powerhouse of Euro Zone, has declined in both 2023 and 2024, dragged on by Germany's auto sector significantly.
Germany’s auto industry has been struggling with mounting challenges, such as intensifying competition on costs and innovation, as well as difficulties to gain ground in the EV race, which some auto makers have attributed to federal government bureaucracy and regulation.
Trade policy has also reignited the concerns. Germany, and especially its autos sector, are heavily export oriented and count the U.S. as one of their biggest markets. Recent data from Destatis showed that auto and auto part exports to the U.S. declined by 8.6% in the first half of 2025, compared to the same period last year. Auto makers have also repeatedly warned of the potential impact of tariffs and surrounding uncertainty.
Massive profit declines, overcapacities, and ailing foreign markets are the major challenges facing Germany’s auto industry. Revenues in the sector pulled back 1.6% in the second quarter of 2025 compared to the same period in the previous year. German auto giant Volkswagen reported a sharp drop in second-quarter profit and lowered its full-year guidance.
The difficult situation of the German auto industry has negatively impacted the economy. Germany recorded 0.3% growth in the first quarter, the latest figures for the second quarter indicated a 0.3% decline. Looking ahead, expecting various German industrial giants will undergo restructuring or cost reduction programs in response to the current situation, which will inevitably further hit Germany economy.
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