Medium-sized suppliers to the automotive and chemical industries fear a further erosion of Germany as a production location due to high energy costs and weaknesses in the infrastructure.

Electricity and gas prices are still two to three times higher than before the war in Ukraine, while interest rates and wages are rising significantly, explained the Working Group of the Supplier Industry (ArGeZ) on Monday on the fringes of the Hanover trade fair. It is made up of around 9000 mainly medium-sized companies with around 925,000 employees in the metal, plastics and textile processing industries. The German government must find an answer to the "dramatically increasing competitive disadvantages" in this environment. "Otherwise we will be the ones with climate-neutral production where no one orders anymore," warned Michael Weigelt, Managing Director of the plastics products association Tecpart.

A creeping deindustrialization can be seen in automotive production as the most important customer for suppliers, explained ArGeZ spokesperson Christian Vietmeyer, who also heads the Steel and Metal Processing Industry Association. Ten years ago, more than 5.6 million cars and vans were still being produced in Germany, but recently only 3.6 million. At the same time, production by German car manufacturers abroad has risen to ten million vehicles. "It is clear to see how value creation is migrating, how the automotive sector is being gradually deindustrialized and how we as SMEs are not always in a position to keep up." In the past, only fully developed mass-produced parts were produced in Eastern Europe due to lower labor costs, but now car manufacturers are demanding that promising new parts be produced there, explained Vietmeyer. "Customers are increasingly demanding production outside of Germany."

BASF's high investments in China are another example of how the supply chain in Germany is being weakened, added Weigelt. The USA, which is driving forward climate protection with high subsidies under the Inflationary Reduction Act, is an interesting investment location with lower energy costs. "It is to be expected that customers will demand in future: Please produce in the USA," said Vietmeyer.

(Report by Ilona Wissenbach, edited by Kerstin Dörr. If you have any queries, please contact the editorial team at frankfurt.newsroom@thomsonreuters.com)