The Automotive Industry in Germany – Driving Performance through TechnologyIndustry Overview

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The Automotive Industry in Germany

Germany is the Geo-graphic and Economic Center of Europe If Germany is known for one thing, it’s the automotive industry. But we‘re not just sitting back and riding on the coat-tails of our reputation as the home of the automobile. Our automotive in-dustry continues to operate at full throttle. Automotive is Germany‘s larg-est industry by turnover, accounting for more than a third of total domestic R&D spending. German car manufacturers

and suppliers are world leaders in inno-vation with more than 3,500 registered patents every year. With 47 OEM com- ponents and assembly plants, 32 indus- try-related innovative clusters, 3,600 tier 1, 2, and 3 suppliers and Europe’s most experienced workforce, Germany is the primary location for technology-driven companies active in all stages of the value chain.

Member States of the European Union

Industry Overview 2008 www.invest-in-germany.com 3

1 Source: ACEA, 2008 2 European Union 25 + EFTA 3 (Switzerland,

Norway and Iceland)

The German Automotive Industry in Numbers

- Number one automotive market by pro-duction and sales: accounting for 34 per-cent of all passenger cars produced and 20 percent1 of all new registrations in Europe2

- 5.7 million passenger cars and 500,000 trucks and buses produced at German plants in 2007

- 25 passenger car assembly plants - more than one third of Europe’s installed capacity

- Over EUR 290 billion in annual combined revenues for manufacturers and suppli-ers in 2007 – seven percent growth com-pared to 2006

Passenger Car Production in Europe 2007 in Million Units

- A year-on-year increase of 310,000 units in passenger car production – by far the largest in Europe

- Industry R&D expenditures in 2007 excee- ding EUR 18 billion - more than a third of total R&D spending in the German industry

- 745,000 people work directly in the auto-motive industry - 43 percent of them employed at the supplier level

Change in Passenger Car Production in Europe 2006/2007 in Thousand Units

6

5

4

3

2

1

0

Ger

man

y

Fran

ce

Spai

n

UK

Cze

ch R

.

Italy

Bel

gium

Pola

nd

Oth

ers

Source: ACEA, 2008

5.7

2.6

2.2

1.5

0.9

0.9

0.8

1.4

0.7

300

200

100

0

-100

-200

Ger

man

y

Spai

n

UK

Cze

ch R

.

Pola

nd

Italy

Frac

ne

Source: ACEA, 2008

310

117

92

77 63

18

-169

-83

Bel

gium

The Automotive Industry in Germany

The Advantages of Ger-many as a Location for Automotive InvestmentsAdvantages abound across all segments within the automotive value chain. The leading role played by German manufac-turers and suppliers in the international vehicle industry further demonstrates Germany‘s competitive edge as an out-standing business location.

MarketGermany hosts the largest concentration of OEM plants in Europe - creating con-siderable production volume, client and product diversification advantages for sup-pliers. Established suppliers in Germany are able to access nine different OEMs and their respective decision centers, 25 assembly plants (an impressive one third of Europe‘s total installed capacity) as well as production facilities of almost all top 100 tier 1 suppliers.

PersonnelGermany‘s excellent highly-skilled labor force has been the key to success for the German automotive industry. Benefiting from the country‘s unique education sys-tem geared to meet industry needs, the industry can count on a direct workforce of almost 750,000 highly-trained and experi-enced people. One in nine employees work in automotive-related R&D. The steady flow of mechanical engineers graduat-ing from approaching 100 universities and colleges is helping to ensure continuity of German engineering excellence.

4 Industry Overview 2008

Value ChainActivity Development Design Manufacturing Distribution

Type of Facility R&D Center Design Center Production & Assembly Site

Logistics Center

No. of Automo- tive Locations in Germany

211 212 253 334

Germany’s Share of the European Total

42% 36% 20% 34%5

1: OEM R&D centers2: OEM design centers3: OEM final assembly plants for passenger vehicles;

the total number of OEM production sites in Germany is 474: Automotive logistics center5: Share of German companies among top 100 European logistics providers

Source: Automotive News Europe, Nov. 2006; German Federal Logistics Association

(Bundesvereinigung Logistik), 2006; Invest in Germany Research, 2008

BMW Group, production plant, CO2-booth underframe

Mechatronics/Microsystems Engineering Microsystems Micro and Nanotechnology Mechatronics Microelectronics

Power Engineering Fuel Cells/Hydrogen Power Electronics (Hybrid Engines)

Traffic and Transportation Automotive Engineering and Telematics

Information and Communication Tech.Navigation, TelematicsTraffic SystemsSoftware EngineeringVirtual and Augmented Reality

Environmental Technology Recycling Technology

Industrial Manufacturing Adaptronics Automotive Carbon Fiber Reinforced Plastics Virtual Engineering Mechanical Engineering Process Technology

Materials Science Component Behavior (Modeling) Surface Engineering of Plastics Lightweight Construction Natural Fiber Composites Textile Research

1

R&D Germany is home to 42 percent of all Euro-pean OEM and tier 0.5 supplier automo-tive R&D centers. This makes the country the most important automotive develop-ment activity location in Europe. German-based suppliers and service providers profit from close interaction with their clients from the pre-development stage. They can take advantage of joint research activities with some of the world‘s leading automotive technology research institutes and universities. Numerous innovation clusters integrate industry, science and education in automotive-related areas including mechatronics, microelectronics, mechanical engineering, manufacturing processes, and material sciences.

Technology LeaderFrom machine building to electronics, Germany is the technological leader in all automotive-related industries.

Physical InfrastructureLocated at the heart of Europe, Germany offers a sophisticated infrastructure that integrates state-of-the-art transporta-tion networks with the most modern and cost efficient IT and telecommunications systems available today. Not for noth-ing is Germany Europe‘s number one in logistics. Germany‘s exceptional strength in this area has been underlined by the World Economic Forum‘s (WEF) Global Competitiveness Report 2008 in which the German economy took first place for infrastructure. It is this world class

infrastructure which supports the con-tinued success of the highly efficient and smooth operating automotive logistics environment.

Incentives Germany offers investment incentives of up to 50 percent of capital expenditure. In addition, extensive support is also pro-vided for employment and R&D purposes.

Stable Investment Environment Social, economic and political stability all provide a solid base for your corpo-rate projects. Our judiciary and civil ser-vices are highly professional. Contractual agreements are secure and intellectual property is strictly protected in Germany.

Industry Overview 2008 www.invest-in-germany.com 5

Automotive Industry-Related Networks of Competence in Germany

Dresden

Kiel

Potsdam

Stuttgart

Hanover

Mainz

Wiesbaden

Saarbrücken

Erfurt

Magdeburg

Schwerin

Düsseldorf

Munich

Berlin

Hamburg

Bremen

SWITZERLAND

FRANCE

THE NETHERLANDS

POLAND

CZECH REPUBLIC

BALTIC SEA

BALTIC SEA

BELGIUM

LUXEM-BURG

Mecklenburg-Vorpommern

Brandenburg

Saxony-Anhalt

Saxony

Thuringia

Bavaria

Baden-Württemberg

Hessen

Saarland

Rheinland-Pfalz

North Rhine- Westphalia

Lower Saxony

Schleswig-Holstein

DENMARK

NORTH SEA

National Border

(Federal) State Borders

(Federal) State Capital

City-State

Source: Federal Ministry of Economics and Technology, 2007

1

2

3

4

1

2

1

2

3

4

1

2

3

4

5

6

1

2

3

4

5

1

45

3

2 1 1

4

3

3

14

1

1

1

2

2

1

3

6

2

1

5

24

3

The Automotive Industry in Germany

6 Industry Overview 2008

Opportunities No other country in Europe can boast a comparable concentration of automotive-related R&D, design, supply, manufac-turing, and assembly facilities. No other country in Europe provides the same new investment opportunities offered by the German industry.

- Within the next five years, 16 new vehicle programs - representing an accumulated volume of more than two million units at peak - will be launched in Germany. This represents one third of all new program launches in Europe within 2008 and 2012.

- German vehicle manufacturers are com-mitted to delivering further CO2 emission reductions. The goal for 2012 is clearly set by the European Commission - new vehicles are to produce not more than 130 g/km by means of vehicle technology improvements and other contributory fac-tors. A further 10 g/km reduction is fore-seen through other improvements and increased use of bio-fuels. The industry is building on the country‘s longstanding experience in environmental technologies to secure a leading position in all fields of sustainable mobility.

This approach translates into a strong demand for innovative products that en- hance fuel economy and energy efficiency. Powertrain solutions providers, battery manufacturers, advanced materials (includ- ing light metals and composites) suppliers, and electronics systems suppliers are all finding unique business opportunities in Germany.

Ger

man

y 20

.4

Italy

15.

3

Fran

ce 1

1.3

Spai

n 10

.8

Cze

ch R

. 9.1

Bel

gium

8.3

Pola

nd 5

.4

Port

ugal

3.0

Swed

en 2

.0

UK

1.1

Source: European Light Vehicle Industry Forecast, Global Insight, 2007

No. of New Programs Accumulated Peak Volume in 100,000 Units

New Vehicle Programs and Forecast Volumes in European OEM Plants (SOP 2008 -2012)

16

12

75

4 4

1

3 3

8

- The industry is supported by an active innovation policy and significant pub-lic investments. A total of EUR 15 billion has been made available by the German Federal Government for R&D projects in cutting edge technologies. Applicable research fields in the automotive industry include: alternative fuels, fuel cell tech-nology, alternative powertrain and energy storage systems, active safety, vehicle-to-X communication and traffic management systems. All companies active in Germany (regardless of country of provenance) are eligible.

Mercedes-Benz Direct Hybrid concept vehicle

Industry Overview 2008 www.invest-in-germany.com 7

Incentives

Cash Incentives

Investment Incentives Package Operational Incentives Package

Reduced Interest Loans

R&D IncentivesLabor-RelatedIncentives

Public Guarantees

Investment GrantKfW Loans

(National Level)

State

Investment Allowance1 State Development

Banks

Combined State/ Federal

Grants Recruitment Support

LoansTrainingSupport

Silent/DirectPartnership

Wage Subsidies

+

1) only in eastern Germany

Types of Incentives

Source: Invest in Germany Research, 2008

Incentives for Investments in the Automotive IndustryGermany offers numerous incentives for all investors - regardless of whether they are from Germany or otherwise. There is a large selection of programs designed to support a wide variety of business activities at different stages of the invest-ment process available. Support ranges from cash incentives for the reimburse-ment of direct investment costs to incen-tives for labor and R&D.

Germany’s Investment Incentives PackageInvestors’ production facility set-up costs can be significantly reduced using a num-ber of different measures from Germany’s extensive investment incentives package. The package consists of cash incentives, loan programs offering reduced interest rates and public guarantees at state and national level.

The amount of these investment incen-tives generally depends on three factors: project scope, investor company size and the new investment location. Investment incentives can reach up to 50 percent of eligible expenditures once these factors have been considered.

BMW Leipzig plant,central building: Production BMW 3 Series

The Automotive Industry in Germany

8 Industry Overview 2008

Cash IncentivesThe main instrument of Germany’s invest-ment incentives package are cash incen-tives provided in the form of direct investment grants. Germany will make more than EUR 2.3 billion in cash incen-tives available in 2008.

Investment grants are offered in sev-eral incentive regions in Germany. Eligi-ble investment costs include the purchase or production costs of buildings, machin-ery and equipment. The purchasing costs of intangible assets are likewise eligible. In general, investment projects must cre-ate long-term jobs in order to benefit from investment grant provision.

In eastern Germany, investment grants are complemented by the Investment Allowance (Investitionszulage IZ), which is usually provided in the form of a cash pay-

ment and/or tax credit. As with investment grants, eligible Investment Allowance costs include the purchase or production costs of buildings, machinery and equip-ment. Because the Investment Allowance is a tool specifically created to support the eastern parts of Germany, all equipment financed through the investment allow-ance must remain in eastern Germany for at least five years upon completion of the investment project.

Interest-Reduced LoansSpecial loan programs make up a second component of Germany’s investment incen- tives package. They are offered by publicly organized financial institutions.

These programs usually offer loans at below-market interest rates and subordi-nated loans similar to equity.

The provision of such loans makes it easier for investors to access additional funding from public banks.

Public GuaranteesThe investment incentives package is com-pleted by public guarantees. This tool is offered by the state and the federal govern-ment to help secure private bank loans.

VW plant Wolfsburg – Golf GTI and Golf R32 production (body construction)

Industry Overview 2008 www.invest-in-germany.com 9

Germany’s Operational Incentives PackageLabor-Related IncentivesLabor-related incentives are available throughout Germany. The Federal Employ- ment Agency and all German states offer a range of different labor-related incentives programs. They can be divided into three main groups: programs focusing on recruit-ment support, training support, and wage subsidies respectively.

Incentives for R&D ProjectsGermany offers several incentives pro-grams targeted at reducing the operating costs of R&D projects. Programs operate at the regional and national level wholly independent from investment incentives.

At the national level, all R&D incentives programs are subsumed under the Fed-eral Government’s four-year High-Tech Strategy. The High-Tech-Strategy defines specific sectors with a high dependency on new high-tech developments. Each sector comprises various R&D programs. More than EUR 770 million is available for R&D projects in the automotive and traffic tech-nologies sector.

The High-Tech Strategy: Sectors with Relevant Budgets 2006-2009 in EUR Million

Source: German Federal Ministry for Education and Research (BMBF)

3,6502,000

1,180800770

640430420420

310300270250220

1508050

Space technologiesEnergy technologies

Information and communication tech.Health research and medical technology

Automotive and traffic technologiesNanotechnologies

BiotechnologyEnvironmental technologies

Materials technologiesOptical technologies

PlantsAviation and aeronautical technologies

Production technologiesMicrosystems technology

Maritime technologiesSecurity research

Services

Most R&D projects related to the automotive industry are financed through programs focusing on automotive and traffic technologies providing an incentives budget of EUR 770 million. According to application focus, possibility exists to participate in other funding programs (e.g. materials, production, microsystems, et al.).

German Aerospace Center (DLR), Automotive drive simulator

10 Industry Overview 2008

The Automotive Industry in Germany

Invest in Germany Closely Supports Your Project Management Team throughout the Entire Investment Decision Process

Investment Decision Process – Areas of Invest in Germany Support

Invest in Germany Helps You Our teams of industry experts in the auto-motive and related industries will assist you in setting up your operations in Ger-many. From design and engineering cen-ters to manufacturing and assembly plants, we can support your project man-agement team from the earliest stages of your expansion strategy.

We do this by providing you with all the industry insider information you need – covering everything from automotive markets and segments to industry trends and the supplier landscape; automotive

technology R&D to industry regulation and the domestic labor market.

Profit from our experience and know-how to identify the investment location which meets your specific investment criteria. We help turn your requirements into concrete investment site proposals, providing free consultation services to ensure you make the right location deci-sion. We coordinate site visits, meetings with potential suppliers, service provid-ers, technology partners, universities and other institutes active in the automo-tive field. Our team of experts is at hand

to provide you with the relevant back- ground information on Germany’s tax and legal system.

Invest in Germany’s financial experts help you create the appropriate financial package for your investment and bring you into contact with suitable financial partners. Specialists provide you with detailed information about available incentives, support you with the applica-tion process, and arrange contacts with local economic development corporations.Take advantage of our range of free of charge services.

Investment Process Milestones

Inve

st in

Ger

man

y K

ey S

uppo

rt A

reas

Strategy Evaluation Decision and Investment

Information

Consulting and Project Coordination

- General market information

- Industry guides/reviews

- Conditions for investment, e.g. economic data,labor market, incentive programs, and tax & legal framework

- Proactive identification of business opportunities

- Identification of project- specific location factors

- Discussion of market entry strategies

- Advice on project financing

- Model calculation of potential incentives

- Cost factor analysis

- Identification of possibilities for cooperation with suppliers, R&D institutes, technology partners, etc.

- Organization of site visits and fact finding missions

- Contact with the economic development corporations of the German states

- Support with final site decision - Selection of project partners and facilitators (service providers,financial partners) - Negotiations with relevant authorities - Assistance with the incentives application process

- Seamless project handover to the economic develop- ment corporation in the selected state

Picture credits CoverPhotograph: ©Daimler

Page 2 Germany is the Geographic and Economic Center of EuropeGraphic: ©www.typoly.de

Page 4 The Advantages of Germany as a Location for Automotive InvestmentsPhotograph: ©BMW Group

Page 6 OpportunitiesPhotograph: ©Daimler

Page 7 Incentives for Investments in the Automotive IndustryPhotograph: ©BMW Group

Page 8 Incentives for Investments in the Automotive IndustryPhotograph: ©Volkswagen

Page 9 Germany’s Operational Incentives PackagePhotograph: ©DLR – Institut für Verkehrssyteme

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Managing Director: Michael PfeifferDirector Marketing Communications: Bettina KnapeContact Automotive Industry: automotive@invest-in-germany.com

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Note©Invest in Germany, April 2008All information provided by Invest in Germany is for informational purposes only and not legally binding. Invest in Germany does not accept liability forinaccuracies or errors in translation.

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