Vehicle Manufacture: 24 Billion Euros for Investments

The vehicle manufacturing industry spends more money on innovation projects than any other commercial sector in Germany. For 2004, firms in this sector which, as well as cars also manufacture vehicles for travel by air, rail and water, estimate that a total of 24 billion euros will be spent on innovation. This represents 34 per cent of all spending on innovation in German industry as a whole.

This is the finding of a current innovation survey, commissioned by the Federal Ministry of Education and Research (Bundesministerium  für Bildung und Forschung) and carried out by the European Centre for Economic Research (ZEW), in Mannheim.

Since the last severe economic crisis to hit the car manufacturing industry, in 1994/95, the investments made by the German vehicle manufacturing industry in new products and new manufacturing processes has constantly risen; increasing from 9 billion euros in 1995 to 22.4 million euros in 2002.  Looking at turnover, in 1995, only 5.6 per cent of total spending in the branch was on innovation projects. By 2002, this figure had risen to 7.8 per cent. This positive growth continues today; initial figures for 2003 suggest an increase in spending on innovation to 23.6 billion euros (+5 per cent). According to the plans of firms in the sector, in 2004, 24 billion euros (+2 per cent) will be set aside for investment in new vehicle development and the improvement of manufacturing processes.

There are three decisive factors here. First of all, following the recession in the first half of the 1990s, the car manufacturing industry, unlike almost no other sector, invested in innovation and thus differentiated and rejuvenated its product range. Car manufacturers continue to offer more and more, even technically complex extras, such as new electronic functionalities, plastics and regulation and control technologies; innovations from other branches are quickly and widely implemented. The ever-shorter product life and price competition promotes continual further development of product ranges and stream-lining of production. This is the case for large manufacturers as well as for suppliers. 

Secondly, there is a "structural effect". Companies are constantly changing the nature of their commercial activities and concentrating completely, or primarily, on the manufacture and delivery of vehicle parts. As a result, they effectively transfer to a different industrial sector, moving, for example, from electrical engineering, from machine construction or metallurgy into the vehicle manufacturing industry. Thirdly, companies have only recently increased their efforts to pursue innovation in the manufacture of vehicles for air and rail travel.

The vehicle manufacturing sector is not only a forerunner when it comes to innovation. In view of the sales revenue of 139 billion euros, which is expected to be gained through the sale of new products (product innovations, which have been brought onto the market within the last three years), the vehicle manufacture industry is clearly a leader in the German market. This figure constitutes 35 per cent of the total "innovation turnover" of German industry. In comparison, the proportion represented by vehicle manufacture in the total turnover (from old and new products) is only 21 per cent. This means that the product range in the vehicle manufacturing industry is younger than average.

Thanks to the innovation-offensivebehavioursof German vehicle manufacturing firms, their competitiveness in international markets has improved and contributes to a positive trade balance. If it weren’t for car manufacture, Germany would have a negative trade balance when it came to technological goods.