IT couldn't last forever.
Since German reunification, automakers here have been churning out cars faster than Porsches on an autobahn. Demand in the East pumped production up to record levels - over 5 million automobiles in 1991.
Reunification brought the German car manufacturers "more than they could possibly have anticipated" and made them "lots of money," says Edmund Chew, auto analyst for DRI/McGraw-Hill in Frankfurt.
But the Germans can no longer claim immunity from the economic slump in most industrial nations. Western Germany is on the verge of recession. Economists predict zero economic growth next year. DRI/McGraw-Hill forecasts an 11 percent drop in German car sales in 1993, and an 8.5 percent drop in production.
Watching the clouds build, the industry is reducing its work force: Mercedes will cut 27,000 jobs by the end of 1994; Volkswagen another 12,500 by the end of '93; BMW 3,000 this year; and Opel's management plans to trim 6,000 workers from its main Russelsheim plant. Almost all the cuts would be through attrition.
"The downturn in the economy is exposing our weaknesses," says Winfried Grzenia, spokesman for the German Automotive Industry Association in Frankfurt.
In a country where 1 in 6 jobs is related to the auto industry, those weaknesses are numerous. First and foremost is Germany's cost disadvantage.
Except for Sweden, Germany's cost of labor lies far above the rest of the world auto industry, yet its auto workers put in fewer hours than those in competitor countries.
To make matters worse, next April 1 marks the beginning of the 36-hour work week in Germany. The corporate tax bite is bigger in Germany than elsewhere.
"The product is not our problem," comments Mr. Grzenia, "it's productivity and high costs."
Mercedes-Benz will sell 30,000 fewer cars this year than expected, partly due to the fact that its new luxury model, the S-class, was "a total flop," according to auto analyst Cord Surie at Paribas Capital Markets in London.
Mr. Surie says it was too ostentatious and too big for Europe's narrow city streets and small parking spaces. "A lot of companies refused to have a car with such a showoff effect," he explains. Company cars are an important segment of the German auto market.
Occasional misjudgments aside, car design and quality have traditionally given the Germans the upper hand in the European market, of which they control about 40 percent. Their reliable design-and-conquer formula will not work anymore. With the immediate problem of recession (abroad and at home) and the longer term challenge of Japanese competition, Germans must become lean and mean - something "new" for them, Surie says.
German automakers must shed 200,000 to 300,000 jobs over the next few years, including white-collar positions, Grzenia says.
Analysts point to mass producer Volkswagen as the company with the most fat to trim.
DRI/McGraw-Hill analyst Chew suggests Volkswagen should reduce its work force by a full one-third. But VW, he says, has not been serious in reducing costs. This is partly because VW management is in flux. Carl Hahn, the head of Volkswagen, will be replaced next year by Ferdinand Piech, the current chief of Audi, Volkswagen's luxury car division. Mr. Piech has a reputation as an effective cost-cutter.
The German newsmagazine Der Spiegel reported this week that Volkwagen AG will have an operating loss of 1.1 billion deutsche marks ($688 million) in 1992.
Volkswagen, says Paribas's Surie, operates on an "incredibly thin margin" which has been eaten away by the strong deutsche mark and currency devaluations in Europe this fall. The company also had to abandon its Yugoslav subsidiary in April of this year. France, Britain put pressure on Germany
Germany still tops its European competitors in productivity, but it has lost much of its lead. In the 1980s, productivity at French and British motor companies rose at an average rate of about 6 percent a year compared with only 2 percent for Germany.
German automakers have much to fear from the French, who have made "massive strides" in productivity and are Germany's greatest competitor in Europe, says Chew.
Perhaps the biggest surprise in the French auto industry is state-owned Renault, once considered a doomed dinosaur. After streamlining and cost-cutting, it now is among France's industrial bright spots.
Last year the company's new Clio was named "car of the year" by European automotive journalists, and at this year's Paris auto show the new Twingo - a sort of minivan - grabbed most of the kudos.
Renault's share of the French car market jumped nearly 4 points to 30 percent this year, while its share of the European market inched up by almost a percentage point to just over 10 percent. The improvement took place as Europe's total car sales were coming down.
Unlike the German, Italian, and Spanish car markets, the French market is expected to continue registering modest growth into next year - up 4 percent in 1993, according to DRI/McGraw-Hill.
Privately owned Peugeot, which claims to be the most profitable automaker in the world, is also enjoying the fruits of cost-cutting. While its share of the French market is falling, European sales are up and 1992 is expected to be the year Peugeot surpasses Fiat as Europe's second-largest seller.
The French automakers' healthy performance tends to debunk the theory that protecting domestic industries perpetuates inefficient and high-cost companies.
Most analysts agree that both Renault and Peugeot wisely used the grace period afforded them by France's strict limits on Japanese imports. Those limits will be replaced next year by a Japan-European Community agreement on import quotas aimed at creating a fully open EC market by the end of the decade.
Japan presents a threat to the German auto industry as well. Partly from production plants in England, Japanese manufacturers have been able to capture about 15 percent of the German market.
Automakers in Germany are making some structural changes to prepare for coming competition. Mercedes-Benz opened a new plant in Rastaat in May. Opel unveiled a plant in Eisenach, in eastern Germany.
German firms are also relying more on cheap production in other countries. Audi has cut costs by building its wiring systems in Poland and Hungary.