“Made in Germany” Does Not Mean What It Once Did

by Martin Armstrong

There was a time when you paid more for a German automobile because “Made in Germany” actually meant something. Mercedes-Benz, BMW, Audi, Porsche, and Volkswagen built an international reputation around engineering, quality, and precision. People willingly paid the premium because Germany was supposed to build the machine better than everyone else. That reputation became one of the foundations of Germany’s entire export economy.

Now Volkswagen Group is recalling 2.86 million Volkswagen and Audi vehicles because a screw in the steering system can corrode and potentially fail, causing a loss of steering. The recall covers Volkswagen Tiguan, Touran, Golf, Golf Variant, and Caddy models produced over an eleven-year period, along with Audi Q3s built between 2017 and 2024. Germany’s KBA says there have been no known injuries or property damage, and Volkswagen says the replacement takes about an hour. Fine. Recalls happen to every manufacturer. But this could hardly come at a worse time because the larger German automobile industry is already fighting for its life.

“Made in Germany” simply does not carry the economic weight it once did. German manufacturers are asking consumers to continue paying a premium while Chinese manufacturers have rapidly closed the gap in quality and, in areas such as batteries, software, electronics, charging, and manufacturing efficiency, have become formidable competitors. Brand loyalty only survives as long as consumers believe they are receiving something superior for the additional money.

The Germans are admitting the problem themselves. Mercedes-Benz said this week that manufacturing automobiles in Germany is NOT internationally competitive, particularly because of labor costs. Mercedes production chief Michael Schiebe warned employees that unless costs come down, the company could eventually close one German assembly plant and one powertrain plant. Volkswagen has already embarked on the largest restructuring in its 89-year history as it battles overcapacity and Chinese competition. It lost its position as China’s best-selling automobile brand to BYD in 2024 and fell behind Geely the following year. Volkswagen is now cutting tens of thousands of jobs and reducing production capacity.

Then there is Porsche, once the crown jewel of Volkswagen. Volkswagen has taken a €6 billion write-down on its Porsche stake after another €2.7 billion impairment the previous year. Porsche has been battered in China and made costly mistakes during the transition to electric vehicles. Its profitability has fallen so dramatically that Volkswagen’s budget Skoda operation has overtaken it on margins. What is the fundamental change? China unexpectedly learned how to manufacture.

For decades, Western companies treated China as a source of cheap labor. They moved manufacturing there, transferred technology, constructed supply chains, trained workers, and taught Chinese companies how Western industry operated. Politicians assured everyone this was globalization and that Europe would simply move toward higher-value industries.

Well, China moved up the value chain too. The European Central Bank now openly admits that China’s industrial rise is pushing European companies out of global markets, particularly in machinery and transportation equipment. Germany is the most exposed of the major European economies because its export profile most closely resembles China’s. The Chinese are no longer merely producing inexpensive toys, textiles, and household goods. They are competing directly in the industries Germany once believed belonged to it.

Automobiles are the perfect example. Chinese brands accounted for about 9% of EU automobile sales during the first half of 2026, according to industry data cited by Reuters, and AlixPartners estimates they could reach 16% of the broader European market by 2030. Meanwhile, foreign manufacturers’ share of China’s own automobile market has collapsed from 64% in 2020 to roughly 32% this year. China first displaced the foreign manufacturers at home. Now it is coming after them abroad.

This is how economic power shifts. It does not happen because somebody holds a press conference announcing that Germany is no longer competitive. Consumers simply stop buying the product.

The European response, naturally, has been tariffs and protectionism. Rather than asking why Chinese manufacturers can increasingly offer competitive vehicles at lower prices, Brussels wants to construct walls around the European market. But tariffs do not make German factories more efficient. They do not lower Germany’s energy or labor costs. They do not produce better batteries, faster software development, or cheaper automobiles. They merely force European consumers to pay more while giving domestic manufacturers additional time before reality arrives.

Germany inflicted much of this upon itself. It abandoned cheap Russian energy without constructing a competitive replacement, pursued an expensive energy transition, buried industry beneath regulation, and simultaneously demanded that its automobile manufacturers spend enormous sums transforming their product lines. Reuters estimates that the post-2022 energy shock added roughly €1,000 to the cost of manufacturing a vehicle in Germany. You cannot continuously raise the cost of production and then act surprised when someone else produces the same product for less.

This is the part politicians never understand. Consumers are not charities. Someone shopping for a vehicle does not care about preserving the German industrial model. They look at price, quality, technology, reliability, range, features, and financing. If a Chinese manufacturer can provide more technology for €10,000 less, telling that customer about Germany’s glorious manufacturing tradition will not close the sale.

Germany once earned its premium through engineering. The danger now is believing the badge itself entitles manufacturers to that premium forever. The Volkswagen recall is therefore symbolic of a much larger problem. Again, there are no reported injuries and every major manufacturer issues recalls. But Germany can no longer afford repeated blows to the perception that its products justify their higher prices while Chinese competitors are advancing at breathtaking speed. Reputation takes generations to build and remarkably little time to lose once consumers discover alternatives.

Germany’s automobile industry was not simply another business. It was a pillar of the country’s postwar economic model, supporting manufacturers, suppliers, engineers, skilled workers, exporters, and entire communities. If that industry continues losing competitiveness, the damage will spread far beyond Volkswagen dealerships. China did not destroy German manufacturing. Germany helped destroy its own competitive advantage while China spent decades building one.

The words “Made in Germany” once allowed a manufacturer to charge more because the customer assumed German engineering meant something exceptional. That reputation still has value, but it is no longer enough by itself. The Chinese are forcing the Germans to compete again on price, technology, efficiency, and quality rather than living off a reputation built by previous generations. If Germany cannot do that, no tariff from Brussels and no amount of nostalgia will save its automobile industry.