Auto SMEs urge policy action amid investment cuts

A new survey by the German Association of the Automotive Industry (VDA) has revealed widespread concern among small and medium-sized automotive enterprises (SMEs) about the current economic climate, alongside high expectations for the newly appointed German government.

The VDA’s latest SME survey, conducted from May 5 to 15 with 136 participating firms, paints a sobering picture of the industry’s mood. While there is cautious optimism about the future, companies are grappling with acute investment constraints, difficult financing conditions, bureaucratic burdens, and poor infrastructure.

Investment cuts and offshoring on the rise

A striking 76% of respondents said they are postponing, relocating, or cancelling planned investments in Germany. One in five companies (20%) intends to cut investments altogether, and 24% are planning to move investments abroad, primarily within the EU and Asia. Only 1% are considering increasing their domestic investments.

“We as the German automotive industry want to preserve jobs and prosperity, and we want to continue manufacturing our products and cars here in the future. But for this to happen, something must happen in Germany as a business location. The federal government must now focus on everything that creates growth — and do so decisively and swiftly.”

The most cited reason for withholding investment was the current sales situation and market outlook (58%), followed by high operational costs (16%) and restrictive financing conditions (15%).

Financing a growing barrier

Nearly half (40%) of all surveyed companies engaged in bank loan negotiations over the past three months. Of these, 69% described the banks’ stance as restrictive or outright dismissive, citing higher interest rates, stricter collateral requirements, and shorter loan terms. Only 11% found banks cooperative.

“To successfully master the transformation, medium-sized automotive suppliers need more than just traditional bank loans; they need genuine transformation financing and support. In particular, regulatory levers for banks at the national and EU levels must be reassessed and adjusted. They must be harmonised so that automotive suppliers can be even better supported and understood by their banks during the transformation.”

High expectations for new government

Despite challenges, there is cautious confidence in political change. 63% of respondents believe the new federal government will improve conditions for industrial SMEs, with only 4% expressing uncertainty.

There is also measured optimism about the coalition agreement: 26% of companies see it positively, while just 12% view it negatively. However, a majority (62%) remain neutral, waiting to see if political promises will translate into action.

“SMEs are the backbone of our economy,” Connemann said. “The Federal Government knows that to ensure this remains the case, innovation and competitiveness must be restored and secured for the long term. To achieve this, we will reduce energy costs and corporate taxes. We will reduce bureaucratic burdens, promote investment in future technologies, and drive forward digital transformation. We are also committed to resilient supply chains and a strengthening of the European single market.”

Red tape and infrastructure hurdles remain

The survey confirms that bureaucracy is still the top challenge: 88% of companies feel heavily or very heavily burdened. Infrastructure concerns are also growing, with 42% reporting operational impacts from deteriorating roads and bridges.

Müller stressed the importance of ensuring infrastructure funds are effectively deployed: “With the special fund for infrastructure, the pressure on politicians is growing to ensure faster procedures and more efficient structures so that the money actually reaches roads, railways, and bridges.”

Transformation, diversity, and workforce impacts

Despite economic headwinds, many SMEs remain engaged in the industry’s transformation. 45% of respondents are active in both combustion and electric mobility sectors, while 35% are drive-type agnostic. Only 10% are focused solely on combustion technologies.

However, transformation is also taking a toll on employment. 57% of companies are currently reducing headcount, with only 10% expanding. A declining shortage of skilled labour (now at 31%) suggests that slowing industrial activity is beginning to impact the labour market.

The VDA’s SME survey delivers a clear message: automotive SMEs are ready to embrace the future, but they need political support, reliable financing, and a competitive business environment to do so.