Possible recession in Germany brings new cost increases for the automotive industry

Automakers warn of rising costs and falling sales as the Germany is facing a possible recession

Stellantis agreed with BMW warning that the Europe is struggling to cope with rising costs. As a result, consumers in the region are starting to back off on car purchases.

The comments come as German factory orders continued to fall in September, adding to concerns that Europe's largest economy is sliding into recession as it struggles with rising energy costs.

Demand fell by 4% from the previous month, a steeper drop than the median estimate of 0.5% from Bloomberg's forecast with economists and accelerating from the revised 2% decline in August.

The worse-than-expected drop was due to overseas orders, which fell by 7%, the Federal Bureau of Statistics said in a statement on Friday.

Demand from the euro area was 8% lower, compared to a decrease of 6.3% from other countries. Domestic orders increased slightly.

"The outlook for manufacturing activity remains gloomy in the light of high energy prices, which are increasingly affecting consumers," the German Economy Ministry said in a statement.

"After the surprisingly positive development of gross domestic product in the third quarter, a weak fourth quarter is looming."

Manufacturing and industrial production also fell in France in September, although the respective declines of 0.4% and 0.8% from the previous month were smaller than economists' average estimates of 1.3% and 1%.

Reduction in demand

Factories across the region are struggling with record inflation that is reducing demand for their products.

Surveys by S&P Global showed this week that the eurozone's manufacturing sector is already in recession, with Germany among the worst performing countries.

Companies in the country have been forced to reduce their dependence on Russian gas quickly after supplies were cut off as President Vladimir Putin continues his war in Ukraine.

While the likelihood of winter shortages has been reduced thanks to the mild start to the heating season, the price rise is weighing on companies and households.

German orders for consumer goods continued to rise by 7.2% in September, but producers of capital goods used in manufacturing and services fell 6% on the previous month, according to the statistics office.

However, most of the new orders received for the first time since May 2020 were completed, despite ongoing tensions in the supply chain.