The Car Industry’s Path from Diesel Stupidity to a Happy Ending

The successful German car industry has made three big mistakes in the last ten years: Diesel, electric and China.

But nobody is stupid in the automotive industry: nowhere is the density of smart, experienced experts higher. Nowhere is it more fun to work on projects with colleagues than here.

And yet: everything together results in a lot of irrationality. Luca de Meo, CEO of SEAT at the time, used to challenge us with the statement: "This industry is full of bulls***t."

Or in Forrest Gump's words: "Stupid is as stupid does."

The diesel crisis was a stupidity that everyone deeply regrets.

Background: Diesel engines are known to emit very little CO2. But diesels also produce nitrogen oxides (NOX). These can be filtered out. You just have to fill up with urea (AdBlue). This is an additional expense. Getting customers used to this disadvantage seemed impossible to the product strategists in 2010. If you compare this with the complicated charging process for electric vehicles, it seems absurd today.

Just stupid.

Then came the diesel crisis and everything became apparent: the collusion, the defeat devices, the lack of supervision by politicians and the Federal Motor Transport Authority. As a result, there was a panic to switch to electric vehicles in order to become more environmentally friendly and CO2-free.

Herbert Diess, ex-CEO of Volkswagen, trimmed the entire Group for this change in strategy: Billions were poured into the MEB and other electric kits, factories were converted, dealer contracts were terminated. Only to realize later that customers need a functioning charging infrastructure. And in heavily regulated Europe, no manufacturer can put this on the road for the mass market alone.

And that is why electric vehicles are currently unable to win over normal customers. That was foreseeable and therefore, let's say, not rational.

Because when subsidies expired at the end of 2023, sales of electric vehicles collapsed. The government cannot create a functioning market. At the same time, the renowned VDI (Association of German Engineers) published an elaborate study on the carbon footprint of vehicles with different powertrains in December 2023. It measured how much CO2 is emitted during production, use over 200,000 km and disposal. The results shocked many. Electric vehicles still emit75% of the CO2 of diesel vehicles. Plug-in hybrids are on a par with electric vehicles.

The experts in the car industry have known it for a long time: investing a lot of money in the development of cars that hardly anyone wants and whose contribution to the carbon footprint is rather modest seemed illogical for a long time.

But the consequences of the next stupidity are only just becoming apparent.

By 2022 at the latest, the Chinese will have taken over the global market leadership in traction batteries and electric vehicles. They have "copied" car manufacturing from Western manufacturers, not least by forcing them all into joint ventures. All of them already have their partnerships, and in some cases the Chinese also have a stake in the European parent companies. Volvo is already Chinese.

The EU is now looking at introducing punitive tariffs on imports of Chinese EVs into the European market.

And that will be, as the American says, the next "shitshow " - also with announcement. Because the Chinese have even more weapons in their "arsenal of revenge": many top German cars only exist because China supplies the volume to spread the development costs. Just think of the Audi A8, the brand's flagship: without demand from China, the car would simply not exist. And China is the growth market of the future, not Europe. So if the Chinese resist the punitive tariffs, it will be existentially painful for all German manufacturers.

That's not a guess. We already know that.

The perfect dilemma has been set up, with our involvement: Diesel, electric, China. What a drama, right before our eyes!

Almost all options have been exhausted.

Managers in the automotive industry are used to success and to problems simply being "bulldozed away": I was in Wolfsburg the day Volkswagen transferred 22 billion dollars to the US government as part of the settlement in the diesel crisis. It was business as usual at the Wolfsburg plant. Not a single light bulb flickered that day.

It's different today. And everyone knows it: diesel, electric and China have emptied the coffers and driven up debt.

Our hero, the German car industry, is in dire straits.

What options do the top managers have?

More sales are almost hopeless. The markets are saturated. The core market of Germany and many other countries are on the brink of recession. With Renault and Stellantis, the competition in the mass market is no longer as sleepy as it was a few years ago. The Chinese are also taking a big slice of the cake.

Many costs are difficult to reduce. This is because regulation has regulated as if there were no tomorrow, when the German automotive industry would not wake up as strongly as it did in the 2010s.

Product investments can hardly be reduced or postponed because the requirements are tough. For example, the EU7 emissions standard. Under EU7, a Polo can no longer be driven conventionally and therefore becomes significantly more expensive. A comparatively environmentally friendly Polo!

Personnel and energy costs are structurally high in Germany and, according to experts, will remain so. The loss of Russian gas and the energy transition will be more expensive than expected and will make electricity more expensive in the long term.

Now we can still talk about prices, and that is the greatest strength of German manufacturers. All German brands (including Opel) have a strong reputation and pricing power.

Now there is nothing left but to reach deep into the toolbox of top managers: takeovers, tough restructuring, plant closures, capacity reductions. I, for one, am preparing myself for precisely this scenario.

How this drama turns into a happy ending.

Let's look at it another way: the drama of the German automotive industry follows the narrative structure of a Hollywood movie.

The dramaturgy of Hollywood films follows a standardized sequence that has become known as "A Hero's Journey"

Most Hollywood productions follow the concept of the Hero's Journey

The scheme works as follows: At the beginning, the hero appears in his everyday surroundings. The characters are introduced. Then comes the adventure: the hero takes on a new challenge, conquers the world and has to leave his familiar everyday life behind. And then adversaries appear. The hero has to defend himself against opposition and ultimately fight for his existence. And now comes the dramatic transformation: In this battle, the hero transforms himself - through his transformation (physically, psychologically) he gains the decisive powers for the final act: "Storming the castle". Using the last of his strength, the hero succeeds in defeating his opponents and achieving victory. The hero gets the girl and leads a happy life from then on.

We all have a right to a happy ending.

The history of the German automotive industry has so far followed the Hollywood narrative structure exactly. And that's why I firmly believe in a happy ending.

To understand this better, we need to rewind to the transformation. Because what exactly does the transformation of the hero mean?

First of all, the hero's failure is structurally important for the story.

Without failure, there is no reason for the hero to change. Failure is essential for the entire story and for the credible development and transformation of the hero. He must fail in order to give up old habits, strategies, beliefs, attitudes and skills and replace them with new ones.

Failure and the associated pain are part of the transformation

The hero must be put back into a state of learning. His ego, which resists change, must be conquered beyond doubt. Then our hero changes as a person. He changes his perspective on the problem and finds solutions that work. And in this he is human. That connects us with the hero. That's why we love these movies: Because we subconsciously know that this is how life is. Failure hurts and failure stands for weakness and defeat. But failure is actually just the transition to a new state.

The German car industry has to fail in order to transform itself.

Let's be honest, people, the German car industry IS already failing today.

German manufacturers and suppliers are heavily in debt. The management is running out of options. The government is running out of money, but also the will to support it. The public is demanding that the industry switch to electric, but customers don't want to buy.

It's hopeless.

But it's far from checkmate. We can still make some moves in this drama.

As a result, the potential for change that lies within employees is only used superficially. The qualifications, inventiveness, creativity and willingness to change of the workforce are high. The cars rolling off the production line today are still great: excellent electric cars are coming out of Germany. The market shares in profitable markets are almost stable. Good money is still being earned.

And there is a lever here that the top managers of the German car industry have not yet used. We can learn this from Hollywood:

The failure of the hero can bring about lasting, credible change in the minds of employees.

The strongest remaining lever is to change the mindset in the automotive industry.

Because the failure of the automotive industry results in the failure of many personal careers. The automotive industry is ultimately the sum of the careers of the people who work in it. Without people, it consists only of empty factories and office buildings.

This is a crucial starting point that is obvious, but is used far too little. Managers prefer to focus on new products and technologies (or software), more efficient processes, better marketing, etc., and miss this opportunity because they do not take advantage of it. And they miss this opportunity because they avoid this hard truth. But this underestimates people's ability to adapt and learn.

Why don't we give employees the chance to take their future into their own hands? They are the experts who have already solved the most complex problems.

Because if the industry is changing, if the fundamentals of the business and the tasks of employees are changing fundamentally, don't convictions, values, attitudes and ways of thinking also have to change fundamentally? And if this is the case, don't managers need to shape the environment and provide tools and support to help people in the industry with their PERSONAL transformation?

Our automotive world has changed.

The toolbox for crisis management in 2024 contains different instruments than in 2015 or 2008.

The tools and interventions by management are also different. Lockdowns in particular have led to the digitalization of many conventional tools that were previously only available for individual interventions.

And suddenly these tools are scalable and applicable to the transformation of the automotive industry.

Here are a few examples:

• Unconventional learning formats for exploring new behaviors.
• Change management and systematic interventions.
• Process learning in the team, in the project, at work.
• Mentoring and individual coaching.
• Coaching at scale

But they are hardly widespread in the automotive industry. Our "Future Skill Designer" can help with the assignment. We have developed this tool for this purpose.

Please tell the top managers.

Tell the politicians so that they can support it. And keep your hands off industry. Those responsible must support the PERSONAL transformation of their team.

Changing mindsets is a management task. It cannot be delegated. Managers are on their own.

The HR department can provide support. But mindset change is a management task and cannot be delegated.

The teams in the automotive industry have what it takes to "storm the castle" and achieve victory. "Victory" means that the best and most economical cars will continue to be "Designed and Made in Germany" in the future.

The German car industry will not go under.

It will change massively.

Give the managers these tools.