Germany’s auto suppliers grow more pessimistic as investment and hiring slump

Germany’s auto-supplier network is sending a warning far beyond one troubled sector: the middle tier that has long anchored the country’s manufacturing model is losing confidence, capital and jobs at the same time. A survey of 116 automotive suppliers conducted from May 12 to May 24 found that nearly a third expected business conditions to deteriorate over the next year, while only 25% saw improvement ahead. Around two-thirds said planned investments in Germany would be postponed, moved abroad or cancelled, and more than half said they were cutting jobs at home. Just 3% were hiring domestically, the weakest reading since comparable data began in June 2024.

That shift matters because the auto supplier base is not a side story in Germany, it is part of the country’s industrial core. The Verband der Automobilindustrie says the transition to electric vehicles could cost 225,000 jobs in the coming years, and in its May outlook it warned that the industry could lose a further 125,000 jobs by 2035 unless competitiveness improves and technological openness widens. Manufacturers of parts for motor vehicles and engines employed an average of 266,800 people in 2024, down 2% from 2023 and the lowest level since 1997. The automotive industry overall employed about 773,000 people in Germany last year, accounting for more than 14% of all manufacturing workers.

Hildegard Müller, the VDA president, has framed the problem as one of location and policy as much as technology. She has pointed to bureaucracy, high labor costs and rigid labor laws as heavy burdens on smaller and mid-sized suppliers, while warning that investments and jobs are drifting abroad. In a March 2025 VDA survey, 90% of medium-sized automotive companies said bureaucracy was a heavy or very heavy burden, and 93% wanted bureaucracy reduction to be a priority for the next federal government.

The destination for that capital is telling. The latest survey found Asia was the main beneficiary of shifting investment, followed by other parts of the European Union and North America, underscoring how global manufacturing is reorganizing around lower costs and greater flexibility. The pressure is also coming from higher energy costs, taxes, levies, trade friction and weaker competitiveness, leaving many German suppliers less willing to keep reinvesting at home.

The trend has been building for years. In late 2023, the VDA said 35% of companies planned to shift investments abroad and 14% planned cuts. By February 2026, 72% of surveyed companies were planning to reduce investment in Germany, including 28% moving it abroad, 25% postponing it and 19% cancelling it. The latest reading suggests the retreat is deepening, and with it the risk that Germany’s car industry loses not just output, but the innovation capacity and regional prosperity that have long depended on keeping production, engineering and supplier networks at home.