SALN #38: The Car Industry’s Path from Diesel Stupidity to a Happy Ending

Essays·Tools und Frameworks

Reading time: 10 minutes

In the past ten years, the mighty German auto industry has made three big mistakes: Diesel, EV (electric vehicles), and China.

However, there are a lot of intelligent, seasoned professionals in the automotive sector; there is never a shortage of them. Collaborating with coworkers on projects is the most enjoyable thing to do.

All of this, however, adds up to a great deal of irrationality. The CEO of SEAT at the time, Luca de Meo, used to taunt us with the comment, “This industry is full of bulls***t.”

Or in Forrest Gump’s words: ” Stupid is as stupid does.”

Three automotive industry stupidities: China, diesel, and electric

Everyone regrets the foolishness that led to the diesel issue.

Context: It is a little known fact that diesel engines produce less CO2. Nitrogen oxides (NOX) are also produced by diesel engines. These can be eliminated. All you need to do is add AdBlue (urea) to the exhaust system. This requires more effort. In 2010, product strategists thought it would be impossible to get the client accustomed to this disadvantage. This looks ridiculous in the modern era when contrasted with the challenging charging procedure for electric cars.

It’s merely foolish.

When the diesel crisis struck, everything became known, including the defeat devices, secret agreements, and the absence of political and Federal Motor Transport Authority oversight. Consequently, there was a panic to roll-out electric cars as quickly as possible to reduce CO2 emissions and become more ecologically friendly.

For this shift in approach, Volkswagen’s former CEO, Herbert Diess, has refocused the entire team: billions have been spent on the MEB and other electrical platforms, factories have been retooled, and dealer contracts have been cancelled. Only to discover afterwards that car drivers expect a functional infrastructure for charging. Furthermore, no mass-market manufacturer in Europe can install the required charging network by itself due to the size of the network and complex regulations.

And for that reason, the average consumer is currently unconvinced by electric automobiles. Since this was foreseeable, it was, let’s say, illogical.

Sales of electric vehicles plummeted after the subsidies ended at the end of 2023. A market that works cannot be established by the government. The renowned VDI released a comprehensive analysis on the CO2 footprint of cars with various powertrains at the same time, in December 2023. The amount of CO2 released during production, use across 200,000 km, and disposal was measured in the study. Many people are astonished by the outcome. Even then, EV still release 75% of CO2 of diesel cars. Plug-in hybrid cars are comparable to electric cars.

Experts in the automobile sector have long recognized this: it always seemed counterintuitive to spend large sums of money developing vehicles that very few people would ever want and whose carbon effect is too low.

However, the effects of the next foolishness are just now starting to show.

The Chinese have assumed the lead in the global market for traction batteries and electric vehicles by 2022 at the latest. Not to mention, they have “copied” Western automakers by making everyone participate in joint ventures. Each of them already has their alliances, and in certain instances, the Chinese have equity in the parent corporations that are based in Europe. Volvo is in China already.

The EU is currently debating imposing punitive tariffs on Chinese electric vehicle imports into the European market.  ´

And this will be the next “shit show”—as the American puts it—along with an announcement. Considering that the Chinese have a significantly larger “revenge arsenal” of weapons: The only reason why so many high-end German vehicles are available is that China provides the volume needed to offset development expenses. Consider the Audi A8, which is the company’s flagship model: The automobile would not exist in the absence of Chinese demand. Furthermore, China—not Europe—is the future’s growth market. So, all German manufacturers will experience existential suffering if the Chinese defend themselves against the harsh tariffs.

That’s not a guess. We know that.

The perfect predicament has been set up with our participation: diesel, EV, China. What a drama, right in front of our eyes!

All options have been exhausted.

Managers in the automotive industry are accustomed to successes and to the fact that problems are simply “bulldozed away.” I was in Wolfsburg on the day Volkswagen transferred 22 billion dollars to the US government as part of the settlement in the diesel crisis. At the Wolfsburg plant, everything went as usual. Not a single light bulb flickered that day.

Today, things are different. And everyone knows it: diesel, electric, and China have emptied the wallets and driven up debt.

Our hero, the German car industry, has been badly hit.

What options do top managers have?

More sales are out of reach. The markets are saturated. The core market of Germany and many other countries are on the brink of recession. The competition in the mass market with Renault and Stellantis is no longer as sleepy as it was a few years ago. In addition, the Chinese are biting off a large piece of the cake.

Many costs are difficult to reduce. This is because regulation has regulated as if there is not tomorrow when the German automotive industry does 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, through the EU7 emission standard. Under EU7, a Polo can no longer drive conventionally and is therefore 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 talk about the prices, and that is the greatest strength of the German manufacturers. All German brands (including Opel) have a high reputation and pricing power.

Now there is nothing left but to dig deep into the toolbox of the top managers. Takeovers, hard restructurings, plant closures, capacity reductions. For my part, I am preparing for exactly this scenario.

How this drama turns into a happy ending.

Let’s look at the whole thing differently: The drama of the German automotive industry follows the narrative structure of a Hollywood film.

Hollywood films follow a standardized process in their dramaturgy, which has become known as “A Hero’s Journey”.

Die meisten Hollwood-Produktionen folgen dem Konzept der Hero’s Journey

The scheme works as follows: at the beginning, the hero appears in his everyday environment. The people involved are introduced. Then comes the adventure: the hero takes on a new challenge, conquers the world, and leaves familiar life. And then adversaries appear. The hero must defend himself against resistance and fight for his existence. And now comes the dramatic change: In this battle, the hero transforms – through his transformation (physically, psychologically), he gains the decisive forces for the last act: “Storming the Castle”. Using the last of his strength, the hero manages to defeat the opponents and achieve victory. The hero gets the girl and leads a happy life from then on.

We all have a right to a happy ending.

So far, the history of the German automotive industry has followed the narrative structure of Hollywood exactly. And that’s why I’m a firm believer in a happy ending.

To understand this better, we need to rewind to transformation. What exactly does the hero’s transformation mean?

First, the hero’s failure is structurally important to the story.

Without failure, there is no reason for the hero to change. Failure is essential for the entire story and for the believable development and transformation of the hero. He must fail so that he abandons old habits, strategies, beliefs, attitudes, and skills and replaces them with new ones.

Failure and the associated pain are part of transformation

The hero needs to be put back into a state of learning. His ego, which resists change, must be conquered without a doubt. Then our hero changes as a person. He changes his perspective on the problem and finds solutions that work. And in that he is human. That’s what connects us to the hero. That’s why we love these movies: because we subconsciously know that’s how the whole of life is. Failure hurts and failure stands for weakness and defeat. But really, failure is just the transition to a new state.

The German car industry must fail to transform itself.

Let’s face it, folks, the German car industry HAS already failed today.

German manufacturing and suppliers are highly indebted. Management is running out of choices. The government is running out of both money and the will to support it. The public demands that the industry move to electric, but customers refuse to buy. It is hopeless.

But it’s far from checkmate. In this drama, we can still make a few moves.

Problems can never be solved with the same mindset that created them. Albert Einstein

In this way, the potential for change that lies in the employees is only used superficially. The qualifications, inventiveness, creativity, and willingness of the workforce to change are high. The cars that roll off the assembly line today are still great: excellent electric cars come from Germany. Market shares in profitable markets are almost stable. There is still good money to be made.

And here there is a lever that the top managers of the German car industry have not yet used, which we learn from Hollywood: The failure of the hero can bring about a lasting, credible change in the minds of the employees.

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

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

The individual career is a crucial starting point, which is obvious, but is far too little used. This is because managers prefer to focus on new products and technologies (or software), more efficient processes, better marketing, etc. 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.

If the industry is changing, if the fundamentals of the business and the tasks of the employees are fundamentally changing, shouldn’t beliefs, values, attitudes, and ways of thinking also change fundamentally? And if that is the case, don’t managers need to shape the environment and provide tools and support to support people in the industry in their PERSONAL transformation?

Our car world has changed.

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

The tools and interventions by management are also different. The lockdowns have led to the digitization 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 some examples:

However, they are hardly used in the automotive industry. Our “Future Skill Designer” can help with the assignment, which is why we have developed this tool.

Please tell this to the top managers.

Tell the politicians so they can support you. And to keep their hands off the industry. Those in charge must support the INDIVIDUAL transformation of their team.

Changing the mindset is a management task. It cannot be delegated. The managers are alone in this.

The HR department can help with this. But mindset change is a leadership task and cannot be delegated.

The teams of 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 managers these tools.

We all have a right to a happy ending.

Verwandte Artikel