Why Is Germany Successful in Automotive Industry? Explain It Using the Concept of Economies of Scale.

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Germany’s economic strength has been based on car production to a great extent. The automobile industry is one of the dominating sectors because many economic activities rely on and are linked to automobile production (i.e. tire industry, plastics industry, metal processing). If you include suppliers, car services, garages or retailers, a total of about 5 million employees (1 out of every 7 jobs in Germany) depend on the success of the automobile industry. The automobile industry also involves a large number of product groups, such as the production of trucks, buses, trailers, containers, parts and spare parts. Cars are among the most well-known German products on the world market. Germany began to intensively export cars in the 1950s. The slogan ‘Made in Germany’, initially used by the U.S. occupying forces as a sign to warn customers not to buy German products, became an international symbol for high quality, speed and technology. The Volkswagen Beetle was one of the first successful cars on the world market. Robust, compact and cheap, several million were produced. Aside from cars, such as the Volkswagen Beetle, which are produced in great numbers to meet mass demand, luxury limousines and sports cars also dominate the image of the German car industry. The German mass production of cars started in the 1920s. Most factories produced a limited number of models. The Volkswagen plant was established in 1938 in a rural community in Lower Saxony, together with the construction of a whole town (Wolfsburg). Among the first major producers (the number of small-scale car builders reached 150 in the 1920s) were Mercedes-Benz, Opel (since 1927 part of General Motors) and BMW. At the end of World War II, the car industry was virtually destroyed. Rebuilding began in the West, with concentration processes which squeezed-out many small firms. New assembly and components plants (for example, Opel in Bochum) were erected by surviving companies and new firms like Audi, which was formed as a result of a merger of firms like DKW, NSU and Horch, were founded. The establishment of new plants took place around major agglomerations or in adjacent rural areas with close ties to resource industries and suppliers. With the growth of the car firms, numerous suppliers opened up or shifted plants into their vicinity. Along with that, employment steadily increased. Production concepts, processes and the associated technologies have changed dramatically since the first cars were built. Some 70 years ago, car assembly was primarily manual work. Today, the process of car assembly is almost fully automatized. In the old days, firms attached importance to the production of virtually every part in a single plant while today the car producers concentrate on only a few specific production stages (i.e. car assembly). Parts and module production, services and related activities have been shifted to other, specialized firms (outsourcing of production steps). This gives the producer greater flexibility and lowers capacities and costs but also results in increased dependency on suppliers. Since the 1980s, it has become clear that further productivity gains to retain competitiveness could only be possible by outsourcing and securing greater flexibility. Due to this, the entire production system has changed in sectoral and spatial terms. Currently, six German companies dominate the automotive industry in the country: Volkswagen, Audi (owned by the Volkswagen Group), BMW, Daimler AG, Porsche and Opel. Nearly six million vehicles are produced in Germany each year, and approximately 5.5 million are produced overseas by German brands.[6] Alongside the United States, China and Japan, Germany is one of the top 4 automobile manufacturers in the world. The Volkswagen Group is one of the three biggest automotive companies of the world (along with Toyota and General Motors).

As shown in graph above, Germany is the European car production leader: some 4.9 million passenger...
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