Germany is Europe's largest car manufacturer. According to the European Automobile Manufacturers' Association, some 750,000 people worked in the German automotive sector in 2010. France (200,000 employees) and Italy (170,000 employees) were a distant second and third. Germany also holds around 30 percent of the European market share in the automotive sector. During the financial crisis, the German government subsidized the purchase of new cars to support the hard-hit German car industry. German car manufacturers are doing relatively well compared to others in Europe, mostly because German brands have managed to grow in other markets, especially in China.
In 2011, France was the second-largest car producer in Europe, just edging out Spain if trucks and buses are excluded. The French government is looking for ways to support its struggling automobile industry, which focuses its sales mostly on the European market. The French car industry has not had a trade surplus since 2007, an indication of how French producers have lost competitiveness even to newer EU members.
Eastern and Central European countries have strengthened their positions in the automotive industry compared to Western Europe. The Czech Republic and Poland are Eastern and Central Europe's largest producers — they even rank ahead of Italy, which has traditionally had a strong car industry. Foreign investment into Central and Eastern European automotive industries grew significantly in the years leading up to the financial crisis in 2008. Investment tapered off during the crisis, but over the last decade the region's automotive industry (especially in Poland, the Czech Republic, Hungary and Romania) has become more prominent, while it has dropped in significance in Western Europe. For instance, Eurostat figures indicate the number of employees working in vehicle manufacturing in Western Europe fell over the past decade while it increased in Central and Eastern Europe. Moreover, the percentage of value added to GDP by the sector increased in Central and Eastern Europe while it decreased in Western Europe (with the exception of Germany).
As new car registration drops for the fifth consecutive year, the industry is struggling with production overcapacity. To overcome this problem, manufacturers have tried since the outbreak of the economic crisis to consolidate production across Europe. However, no country or company is willing to give up production sites and workspaces in order to ensure the wellbeing of its competitors, and efforts at coordination have largely failed.
Overcapacity has long been a problem and will likely become even more prominent. Due to the current economic crisis, car sales are expected to drop further — and even more so if we consider the longer-term ageing and decline of the European population
. In 2011, 21 percent of worldwide vehicle sales occurred in the European Union. The European Union has the largest car fleet in the world, heavily concentrated in Western Europe. A reduction in car sales will have a global impact, but it will do the most harm to manufacturing plants in Europe, where around 85 percent of cars are produced, including cars produced in Europe by foreign companies.
Central and Eastern European countries could be harmed substantially if foreign investors withdraw. Some of these countries have been building up their automotive sectors over the past decade but still lack the financial capacity to support their industries like Western European governments do. Outside Europe, Japan, which accounts for around 28 percent of EU car imports, would be most negatively affected by falling sales because it is the largest car exporter to Europe, followed by the United States (20 percent) and South Korea (14 percent).