Business climate in German auto industry plummets in May as tariffs take toll

- 'The confusion surrounding the US tariffs is causing problems for the automotive industry in Germany,' expert says

BERLIN/ISTANBUL

The business climate in Germany’s automotive sector continues to deteriorate amid rising uncertainty over potential US tariffs, according to data released Tuesday by the Munich-based ifo Institute for Economic Research.

The ifo Business Climate Index for the German auto industry dropped to minus 31.8 points in May, down from minus 30.7 in April, marking a continued negative trend.

“The confusion surrounding the US tariffs is causing problems for the automotive industry in Germany,” said Anita Wolfl, an industry expert at ifo.

The sector’s business expectations index also slipped to minus 28.3 points from minus 25.2, reflecting growing concern over future operations. However, companies rated their current business conditions slightly better, with the corresponding index inching up to minus 35.3 from minus 36.

"The US President’s volatile tariff policy continues to have a noticeable impact on the industry’s export expectations: Although the figure improved significantly again in May to -0.8 points, it had nevertheless fallen in April to -11.6 points," the institute said.

Trump's tariffs

On May 23, US President Donald Trump stated on social media that the trade talks with the EU was "going nowhere" and announced that he proposed a direct 50% tariff on the EU as of June 1.

EU Commission President Ursula von der Leyen spoke with Trump on the phone after these statements. After the phone call, the US side announced that the decision to apply a 50% tariff directly to the EU as of June 1 was postponed to July 9, 2025. The EU side also announced that trade agreement negotiations with the US would be accelerated.

The European Commission and the US government are currently negotiating a compromise in the trade dispute.

Exemption talks in exchange for billion-dollar investments

Amid this backdrop, German media report that automakers BMW, Volkswagen, and Mercedes-Benz are in talks with the US Department of Commerce to secure customs exemptions. The companies are reportedly offering billions of dollars in new US investments in exchange for relief from the proposed tariffs.

The automotive industry is a key pillar of Germany’s economy, accounting for 5% of total value added and employing 3% of the workforce. Last year, German automakers exported €272.6 billion (around $311 billion) worth of vehicles, representing 17.3% of the country’s total exports.

As of June 2024, approximately 773,000 people were directly employed in the sector -- excluding suppliers -- a 0.8% decline from the previous year. The automotive industry makes up roughly 14% of all industrial employment in Germany, second only to mechanical engineering, which employs 952,000.