German auto industry faces affordability crisis

A new study from JATO Dynamics and Oliver Wyman has revealed that Germany’s automotive industry is in the midst of a growing affordability crisis, with vehicle prices rising 40% between 2019 and 2024 and sales volumes dropping 22% in the same period.

The report, The Automotive Pricing Study, analyses the impact of the transition to electrified powertrains, such as Battery Electric Vehicles (BEVs), Mild Hybrid Electric Vehicles (MHEVs), and Plug-in Hybrid Electric Vehicles (PHEVs), and how these shifts, alongside inflation and broader economic pressures, are reshaping consumer behaviour and squeezing affordability.

Crucially, only a third of the price surge is attributed to BEVs. The remainder is driven by pricing strategies around other electrified vehicles, macroeconomic conditions, and a reduction in lower-priced options. The under €30,000 segment, once a stronghold for volume sales, has seen the sharpest decline in demand, with many consumers either priced out or forced to shift toward financing and the used car market.

Despite a 24% rise in average net salaries over the five-year period, affordability has declined by 11%, underscoring a widening gap between income and vehicle cost. The report warns that this trend, if unchecked, could jeopardise long-term profitability for carmakers and dealers, particularly as competition intensifies for a shrinking pool of affluent buyers.

While many OEMs are struggling to maintain market share, some entry-level brands have defied the trend. One automaker boosted prices by 48% but increased sales by 19% by keeping average vehicle costs close to €15,000, demonstrating that demand remains strong for well-positioned affordable options.

Steffen Rilling, Associate Partner at Oliver Wyman, warned that the crisis demands immediate action from automakers.

“The affordability crisis in the automotive industry calls for immediate and strategic action from OEMs and dealers. By revising their product portfolios, offer structures, pricing strategies, and financing models, manufacturers can effectively address the challenges posed by rising prices and declining sales. Those who adapt quickly and efficiently will be best positioned for profitable growth in the evolving market landscape, as this crisis threatens the future of both Original Equipment Manufacturers (OEMs) and dealers.”

David Di Girolamo, Global Head of Professional Services at JATO, emphasized the need for data-driven strategy:

“With so many changes happening at pace in the automotive market, it’s more important than ever to understand the sales evolution on a granular pricing level. To help OEMs identify revenue pools that can be profitably served with current and new vehicle offers, JATO has been monitoring market performance with derivative-level precision. This study highlights the hidden effect of the changes implemented by OEMs, the effect of powertrain shifts, pricing actions, and ultimately the decision making of consumers. By partnering with Oliver Wyman, we have enhanced our ability to provide OEMs with the strategic insights needed to make well-informed decisions.”

As Germany continues its push toward electrification, the study underscores a fundamental tension: the path to sustainability may be pricing out the very consumers the industry relies on.