Germany’s Auto Industry Set to Pivot to Defense Production Amid Urgent Need for Military Equipment

In a bold proposal, Germany’s leading defense industry group is advocating for a significant shift in the country’s economic focus—from automobiles to defense manufacturing. The Federal Association of the German Security and Defense Industry (BDSV) made this pitch last week, coinciding with the new government’s commitment to dramatically increase the defense budget.

With the pressing need to resolve production bottlenecks in military equipment, the BDSV suggests leveraging the manufacturing prowess of Germany’s renowned automotive sector, which has been struggling in recent years. The defense sector aims to replicate the urgency seen in the energy sector’s response to the war in Ukraine, where swift action was taken to replace reliance on Russian gas.

As European nations prepare to bolster their defense spending, a significant financial influx is anticipated. The European Union has introduced a plan, “ReArm Europe,” which could channel over €800 billion ($868 billion) towards defense initiatives across its 27 member states. This initiative is critical, especially as Germany and Europe reassess their historically dependent relationship with U.S. arms imports, despite having capable domestic manufacturers.

The concept of repurposing the automotive industry for military production is not entirely novel. In June 2024, auto parts giant Continental and defense leader Rheinmetall signed an agreement to aid in retraining workers affected by job losses within the diminishing automotive sector. “The far-reaching changes in all industries can only be mastered together,” stated Ariane Reinhart, Continental’s board member for human resources and sustainability. Rheinmetall, which also has roots in automotive manufacturing, heralded the defense sector’s growth, projecting a 40% increase in profits for 2024 compared to the previous year.

The memorandum outlined strategies for Rheinmetall to recruit skilled workers, including hosting recruitment events at automotive plants and offering positions at defense facilities near sites experiencing layoffs. Last month, Rheinmetall announced plans to convert two factories in Berlin and Neuss, previously dedicated to car parts, to primarily military production.

Rheinmetall reported a substantial rise in its weapons division operating profit, nearly doubling to €339 million ($368 million) in the first three quarters of 2024, while its automotive segment saw a decline of 3.8% to €74 million ($80 million) during the same timeframe. Other defense companies are also stepping into the fray; sensor specialist Hensoldt is reportedly in discussions to hire 200 workers from major auto suppliers Continental and Bosch.

Additionally, the German-French joint venture KNDS has recently acquired a historic rail car plant in Görlitz from French manufacturer Alstom, with plans to retool the facility for military vehicle components, including parts for the Leopard 2 battle tank and Puma infantry fighting vehicle.

Hans Christoph Atzpodien, head of the German defense industry lobbying group, expressed his expectation for a “wholly new dimension to the question of arms demand,” highlighting the increasing necessity for quicker delivery times alongside higher production volumes. He urged government support for the transition, advocating for retraining programs and financial assistance for relocating employees.

A significant challenge remains in the security clearance process for potential weapons manufacturers. The BDSV has indicated that these background checks can be lengthy, a situation that necessitates urgent streamlining.

Atzpodien noted that other sectors, such as machinery, steel, and construction, are eager to contribute to the defense push. “I am quite sure that we will soon enter a phase where substantial resources from various industries will be mobilized for armaments,” he asserted.