'Made in Germany' no longer pride of German carmakers

"Made in Germany" was always the ultimate stamp of quality for iconic home-grown brands such as BMW, Audi and Mercedes, but is becoming increasingly obsolete as manufacturers ramp up production abroad.

In fact, since 2010, more German cars are built outside the country than are assembled in domestic plants, even if their reputation for quality remains undiminished.

The phenomenon "reflects the preference of manufacturers, and not just German ones, to produce more in the markets the cars are destined for," such as China or the United States, said Stefan Bratzel, director of the Center of Automotive Management at the University of Applied Sciences in Bergisch-Gladbach.

It is also a way of "boosting their image because they can be seen by customers as generating employment in the specific regions," said Christoph Skudelny, automobile specialist at management consultants PwC.

"But it's also a way of meeting certain demands by the governments of the countries concerned, as well as cutting logistic costs and exchange rate risks," Skudelny said.

German manufacturers such as BMW, Audi, Volkswagen and Mercedes-Benz were quick to recognise the need to internationalise production, a move that has also enabled them to come out of the crisis of the European car market relatively unscathed.

Over 20 years, the overseas production of carmakers in Germany, including Opel, Audi, Porsche, Volkswagen BMW, Daimler and Ford Europe, has more than quadrupled to 8.2 million units in 2012, according to data compiled by the German automakers' federation VDA.

Furthermore, this has not been at the expense of Germany, where domestic production has also expanded, if not quite as fast, to 5.6 million units last year.

The trend looks set to continue, too, VDA believes. It forecasts German makers will assemble some 8.7 million vehicle outside the country in 2013. That will take the proportion of overseas production up to 63 percent in 2013 from 60 percent in 2012.

Just 10 years ago, the ratio was 45 percent abroad compared with 55 percent in Germany.

And in 1992, it stood at 23 percent to 77 percent.

Luxury sports car maker Porsche is the sole exception, producing all of its cars in Germany.

Daimler, which owns the famous Mercedes-Benz brand, expects to produce only half of its cars in Germany by the end of the decade compared with two thirds at present, a spokesman said.

After having opened a factory in Hungary last year to build its compact models, the group is now mulling assembly plants in Brazil and Mexico, even if "no firm decision has yet been taken," its chief executive Dieter Zetsche told reporters at the IAA auto show in Frankfurt.

"As long as quality is still the order of the day in overseas plants, that won't tarnish the image of German makers," said Bratzel at CAM.

And customers themselves do not seem overly concerned about where their cars are actually built. According to a study by Cetelem, only 5.0 percent of European car buyers attach any importance to that.

Nevertheless, "the more upscale the model, the more the production location becomes important" for customers, Christoph Stuermer, analyst at IHS Automotive.

Manufacturers have cottoned on to this and now promote the merits of "developed in Germany" rather than "made in Germany".

"German engineering enjoys a good reputation. It's that which puts them ahead," said Juergen Pieper, analyst at Metzler.

For the moment, the increased production abroad "has not only created jobs overseas but in Germany, too," where the sector employs 750,000 people, said VDA board member Klaus Braeunig.

Flush with profits, a number of German makers have awarded their workforces generous bonuses this year.

"For political and social reasons, and with a strong labour union (the powerful IG Metall), relocation isn't easy," said Metzler's Pieper.

"And German makers want to show that they'll remain present here."

But Braeunig said that while their was no immediate threat for German sites at present, "there's no guarantee" for the future.