Auto industry in limbo after close German election

BERLIN -- German automakers face possibly months of uncertainty before they know the direction the country's new government will take on the industry.

Olaf Scholz of the center-left Social Democrats (SPD) defeated Chancellor Angela Merkel's conservatives in an extremely tight German general election on Sunday. It will likely take months of negotiations for a new coalition government to be formed.

Based on the election results, coalition options include a government led by Scholz with the Green Party and the Free Democrats (FDP), or an alliance led by Armin Laschet of Merkel's Christian Democratic Union (CDU) party, also with the Greens and FDP.

The SPD, Germany's oldest party, won 25.7 percent of the vote, up five percentage points from the 2017 federal election, ahead of the CDU/CSU bloc on 24.1 percent. The Greens came in with 14.8 percent and the FDP won 11.5 percent.

The SPD or the CDU will need a three-way coalition to govern, meaning the Greens and the FDP will hold considerable leverage during negotiations.

German shares rose on Monday, with investors pleased that the pro-business FDP looked likely to join the next government while the far-left Linke failed to win enough votes to be considered as a coalition partner.

"From a market perspective, it should be good news that a left-wing coalition is mathematically impossible," said Jens-Oliver Niklasch, LBBW economist, adding that other parties had enough in common to find a working compromise.

One of the main points concerning the auto industry is the fate of the internal combustion engine. How to transition the auto industry and its energy system away from fossil fuels without destabilizing the economy is one of the most critical issues facing the German economy.

The Green Party is calling for a ban on combustion-engine cars starting in 2030, while the FDP rejects this strategy and is instead backing openness to technology and synthetic fuels, including for gasoline and diesel cars.

The SPD has not committed itself to a ban on combustion engines in its election platform, and the CDU's stance on migrating away from fossil fuel-powered cars is similarly vague.

The CDU wants to promote electric mobility, but on an equal footing with synthetic fuels and hydrogen drives, a stance similar to the FDP. The CDU wants a "roadmap" for the switch to zero-emissions mobility, with concrete target dates to be worked out.

The SPD does not support a government-determined end date for combustion engines, and Scholz said in a recent interview that consumers would opt for EVs once they achieved price and quality parity.

The leader of the German state of Bavaria, Markus Soeder from the CSU, said he does not believe a ban on combustion engines by 2030 is feasible, but said he thought 2035 was possible

Soeder pointed to the availability of synthetic fuels. "However, we also have to make significant progress with the technology for this," he said, as reported by Automotive News Europe sister publication Automobilwoche.

"We would also need major hydrogen initiatives and, above all, the promotion of synthetic fuels. What is crucial is that we not only talk about bans, but also promote the technology. We are not just looking at a legal ban on something, but at incentives and changes," Soeder said.

BMW and Audi both have their global headquarters in Bavaria.

Key issues

Other issues affecting the auto industry include future fuel prices, the building out of electric charging stations across the country, investment in mobility solutions, and introducing a speed limit of 130 kph (80 mph) on German highways, a proposal the FDP and the CDU/CSU reject but is favored by the Green Party and the SPD.

"The current hiatus between the outgoing and new government causes a bit of anxiety in the German automotive industry as the new political direction is not yet known," Gartner automotive analyst Pedro Pacheco told Automotive News Europe. "Despite the waiting, I can tell the transition will be, to a great extent, evolutionary rather than disruptive."

Germany's two most-voted parties are traditional political forces that probably will not want a major break with recent policies despite pressure by European Union legislation to conduct the transition to electrification at a fast pace, Pacheco said. The EU plans to allow only new cars with zero emissions to be sold in the bloc after 2035.

"Depending on the coalition, we might see a new German government willing to see the local automotive industry play a more active role in sustainability," Pacheco said. "However, the true test will be the ability of those ambitions to stand against the threat of job losses, something that is already looming due to the progressive phase-out of the internal combustion engine -- an invention also dear to Germany itself," he said.

Power struggle

On Monday, Scholz urged the Greens and the Free Democrats to join him in government as soon as possible as he looked to seize the momentum after his party's narrow victory. He said he aims to take office before Christmas.

"It's clear what the electorate wants -- an SPD government with the Greens and the FDP," he told reporters at the SPD headquarters in Berlin.

Scholz, 63, faces a tussle to form a government with Laschet, 60, who said he could still try to form a government despite leading his CDU-CSU bloc to their worst ever national election result.

The Greens and FDP said they would first talk to each other to seek areas of compromise before starting negotiations with either the SPD or the conservatives.

Scholz projected a sense of calm assurance on Monday when asked whether the close election result and the prospect of prolonged coalition negotiations sent a message of instability in Germany to its European partners.

"Germany always has coalition governments and it was always stable," he said in fluent English, standing beside a statue of Willy Brandt, a Cold War-era SPD chancellor awarded the Nobel Peace Prize for fostering dialogue between East and West.

Scholz, who served as finance minister in Merkel's outgoing 'grand coalition,' said a government led by him would offer the United States continuity in transatlantic relations.

After 16 years under Merkel's pragmatic centrist leadership, the outcome of the coalition talks will have wide-ranging implications for Europe and the West.

Merkel, who did not seek a fifth term as chancellor, will stay on in a caretaker role during the coalition negotiations that will set the future course of Europe's largest economy. If she stays through mid-December she will overtake Helmut Kohl as Germany's long-serving postwar leader.

Bloomberg and Reuters contributed to this report