The German auto industry is at a crossroads, Ferdinand Dudenhoeffer says. In an interview, the German automotive expert warns that industry and the political world have to get future issues such as electric mobility, autonomous vehicles and digital sales channels on track ”“ or Germany’s importance as an automotive nation will diminish over time.

Mr. Dudenhoeffer, as the end of the year approaches, which automakers had a good year and which did not do particularly well?You can certainly say that the premium manufacturers were again on the move with high profit margins. Audi, BMW, Porsche, Mercedes-Benz, Ferrari, and Jaguar Land Rover generated an EBIT margin of more than 7 percent in their vehicle business. At Porsche and Ferrari, the figure even climbed to more than 15 percent. The high-volume brands rank considerably below these figures. Nonetheless, we have seen good performance in this market segment. Ford, for example, has done tremendously well. And, with Skoda, the Volkswagen Group has an exemplary brand in the high-volume range.

Will Britain’s exit from the EU have economic consequences? For example, Opel is in some ways extremely dependent on the British market”¦ As I see it, many market observers have overestimated Brexit and its short-term consequences. In the automotive field, it has really been held within limits so far, and I do not expect any serious dislocations in the future, even if the market’s recent high level is certain to soften. I consider our forecast to be valid: Brexit will not change the world insanely. On the contrary, it will give the English greater economic opportunities due to improved exchange rates.

The number of recall campaigns has steadily risen for a wide variety of reasons and they are hurting the reputation of the entire industry. Which levers can the manufacturers use to avoid long-term damage? There are naturally the standard arguments: cost pressures, model proliferation, common parts, growing global sales, and rising complexity due to the expanding range of functions. But that’s the conventional wisdom. Systemic errors are more important, and they lie in the organizational structure. Many automakers react too slowly to failures in the field. As a result, recalls take effect too late, and the number of recalled vehicles rises. With today’s IT and analytics, it is essential not to wait for the first hundred thousand vehicles to see that a mechanical part is causing problems. And software errors can be identified and corrected early online. Strict, authoritarian hierarchies are among the systemic triggers leading to the problems.

Dudenhoeffer.automotiveITWhat role does the respective company culture play in this connection? It is completely decisive. That is why Volkswagen CEO Matthias Mueller is making a 180-degree turn in Wolfsburg, even on the management board. There was previously one smart aleck who controlled everything ”“ from bolts to test drives. The smallest remark that something could be done differently led to pressure. Non-cooperation in any form is naturally deadly when it comes to really big problems. Mueller has broken up the old structures and set up a matrix organization. The product managers now bear more responsibility and make key decisions. VW is also dealing with new issues such as electric mobility and autonomous driving. This is important and promises a number of exciting developments over the course of the turnaround.

Your assessment please: Will the company emerge stronger from the scandal? It is impossible to make that prediction definitively today. But the steps so far have been in the right direction. It will still take time and capital to solve the legal problems. In my opinion, Matthias Mueller is by and large on the right track. VW’s open flank is the company’s “skewed” configuration. It can no longer survive today with over-parity on the supervisory board and its parochial politics involving the state of Lower Saxony and Wolfsburg. Matthias Mueller needs the freedom resulting from a balanced supervisory board and not the predominance of the state and IG Metall. The state’s participation is damaging to the company since it cements the board’s parochial approach. A global company such as VW must have the same opportunity as Daimler, Ford or Toyota to make its cost structures competitive. The decades-long scheming and obstructionism by works council members such as Bernd Osterloh in combination with the state are damaging. If this can be solved, the Volkswagen Group will have good prospects in the sea change affecting the auto industry.

Large e-commerce platforms have the potential to put classic sales under substantial pressure. How should automakers and their dealerships respond?Classic automotive sales operations have extremely high costs. A car buyer has to shell out more than 10 percent of the purchase price for the dealership’s services, such as showrooms, sales staff and demo vehicles. Digitization is making much of this obsolete. Today people are handling money transfers with their smartphones, vacation trips are booked online, and bookstores where books stand side-by-side on a shelf are obsolescent because Amazon is simply more convenient. The auto industry will not be able to escape this trend long-term. If the players put up a fight, their adjustments will no longer be effective. You can already see that owners are increasingly getting new and used cars over platforms. One model example is Tesla’s approach to selling cars. In Berlin, Duesseldorf and Munich, you find stores that accommodate precisely one car. But the people go in because the brand is chic and hip. There the automobile is becoming a lifestyle experience, and everybody is doing the buying and ordering himself on a PC. By contrast, when you wander into a conventional car dealership on a Saturday morning, you find dead calm.

Will automakers ultimately have to jettison their conventional dealer organizations as a result?Yes. Or they will have to completely restructure them so that buyers cannot only configure cars online. They must also be able to order, finance and pay for them online in a legally binding way. In the future, sales and service will go their separate ways. The notion of providing everything in one building in a dismal commercial area is no longer a good fit for our times.

You have already cited Tesla as an example. In your view, can it be a blueprint for the digital sales of the future?Let’s put it this way: Tesla has certainly gone the farthest. Customers go into the store and can order their vehicle directly. Tesla doesn’t need salespeople because the potential customers know very well what they want. Or everything takes place online right from the start. Fantastic animations that explain technical details very well can run on computers today. Video technology and screens are becoming better and better. The question is already being asked: Do I really have to climb into the vehicle anymore? Does the industry really need lots full of display cars, in-stock vehicles, and cars with one-day registrations?

Nonetheless, at every opportunity, automakers stress that dealerships remain the backbone of car sales”¦If I am earning 99 percent of my revenue today via traditional channels, I would be careful about which future plans I communicate. You definitely do not want to miss the right launch point, as is the case with electric mobility. Here the German auto industry did not want to separate from the internal combustion engine for a long time and then invested billions of euros in plug-in hybrids, which no one wants today. Automakers have to make adjustments. Otherwise, they will fail. It is not a promising recipe for future success to sell the same products in different colors in the usual way following the same pattern.dudenhoeffer.automotiveIT

What companies do you consider to be seriously at risk?The smaller Japanese manufacturers will have a hard time maintaining their independence. Suzuki, Mitsubishi, Honda ”“ their world is still strongly marked by four wheels and internal combustion engines. There are no services relating to car IT or the sharing economy. The companies are just building cars in the world of Uber or Didi Chuxing. They are becoming suppliers of “no-names” to the Ubers.

Will the automobile, as a product, continue to be at the center of value creation? Or will the manufacturers have to transform themselves into mobility companies and service providers?This transformation is already underway. In an extreme form in China, incidentally. Visionaries and investors like the internet billionaire Jia Yuetin want to turn cars into rolling sales arenas. That may seem far-fetched to us right now. But the genie is out of the bottle. When we first move fully into autonomous driving, it will quickly become boring to hold a steering wheel in our hand. Then we will want to do something else besides peer at the badges of the cars in front of us, and use their time sensibly. This will have far-reaching consequences, for interiors, for example. There will be more and larger screens on which people can get information, work or shop.

What will change in powertrain systems? Conventional internal combustion engines, plug-in hybrids, electric motors ”“ in your opinion, what offers the greatest potential for the future?In the future, we will all be driving under battery power. In the passenger car area, that is the only sensible alternative that I see for the foreseeable future. Naturally, the challenge is to achieve acceptable ranges and the necessary charging structure at a reasonable cost. Elon Musk of Tesla has mapped out the future.

Unfortunately, Germany has discussed the subject of electric mobility for years and has not sorted it out despite tax incentives”¦The electric cars from German manufacturers lack range. There is no comprehensive charging infrastructure available. In my opinion, the government cobbled together the incentive overnight in an amateur way and failed to prepare it professionally. It just isn’t enough to shake out money. You have to pay attention to and do it right. The measure is not suited to the introduction of a completely new product and new technology. That is why there is still lack of trust and acceptance. It’s not enough to say “Here are a couple euros. Now go and buy yourself an electric car.” Every car buyer determines what is salable in a market. This is not an accusation. It is reality.

Does the issue of autonomous driving pose the same problem?Yes. German Transportation Minister Alexander Dobrindt has done a lot this year to spur this issue on. He has really understood how important this issue is for Germany, the automotive nation. But he also had to recognize how slow the regulation is moving at the European level. In EU politics, the slowest member-country sets the pace. The U.S. is moving many times faster. Four states have already approved all public roads for autonomously driven cars. More will follow. This is creating a deficit that we will have a hard time making up. China won’t be standing still either ”“ laws there can be changed and adopted practically overnight.

In conclusion, what do you personally envision as the future of Germany as an automotive nation?I would basically like to differentiate between German automakers and Germany as an industrial center. I am actually sure that its automakers are moving in the right direction. They have identified all the important issues. And they will address them professionally. It is harder for me to make a prediction for Germany as an industrial center. “Keep it up” falls short ”“ but no more than the sham optimism of “We’re getting the job done.” Chancellor Angela Merkel has to do more for the country and its infrastructure and stop solving the problems of the world, which are often C-problems like Greece and a waste of important management capacity. I honestly cannot even contemplate a scenario in which we continue to fall behind.

-Interview by Yannick Polchow, Ralf Bretting and Hilmar Dunker-Photos: Claus Dick, Picture Alliance/ZB