Germany is voting on Sunday

Investment Analysis Clubs Macro Economic Trends and Risks
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As Germany’s federal elections approach this weekend, chancellor Olaf Scholz and his Social Democrats (SPD) are bracing for their worst results since 1887. The SPD is battling with its equally unpopular coalition partner, the Green Party, for a humiliating third place, behind the conservative Christian Democrats (CDU) and the right-populist Alternative for Germany (AfD).

Germany has just endured two years of recession – the longest economic slump in its postwar history. Industry is in freefall, shedding almost a quarter of a million manufacturing jobs since the start of the pandemic.

A series of terror attacks by Islamists and asylum seekers has made many Germans wonder if the state can do its basic duty to keep them safe. Talk of German efficiency and punctuality now sounds like a sarcastic joke, as roads and bridges fall into disrepair, trains are routinely late and infrastructure projects are plagued by delays and cost overruns. One in five German children lives in poverty.

DB2

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So about the same as in the United States.

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The German rate is some 60% higher than in the US.

“The official child poverty rate in 2022 was 12.4% according to the United States Census Bureau.”

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Personally, I suspect that is due to “McKinsey disease”. This is the latest brain cramp from management of the Audi division of VAG:

Following an 11.8% decline in deliveries in 2024, which saw Tesla surpass the Four Rings for the first time, Audi is focusing on higher profit margins rather than chasing numbers.

Speaking to Auto Express, Jose Miguel Aparicio, Audi UK’s new chief, confirmed the strategic shift: “We are making a step upwards in terms of premiumness, increasing the prestige, desirability and perception of the brand, and more interested in the quality of business than the quantity.”

This is the same nonsense the CFO of the VW division said a couple years ago: they don’t care about volume. they are going to push prices and profit margins up to take more money off of each of the shrinking number of people who still buy from them.

Ford is uttering the same nonsense. It’s CEO said Ford will be “the Porsche of off-road”, because Porsche is known for high prices and fat profit margins.

BMW became notorious, a couple years ago, when it started charging “subscription fees” for using features that were already built into the car and needed no external support, like seat heaters. Ford is nurturing the same wet dream, of bleeding it’s customers with service fees in perpetuity.

Reality check. How well do VAG products serve their customers? This is the 2025 J D Power ranking of auto brand reliability for three year old cars.

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Notice: the worst cars on the US market, are from VW. Audi is 4th worst. And VAG thinks it can charge even more, than they already do?

This is the sort of delusional nonsense that I heard from top management at RS. And people wonder why folks are staying away from German products?

Steve

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Your numbers are incorrect.

The ACS shows that in 2022 the child (people under age 18) poverty rate was 16.3%, 3.7 percentage points higher than the overall rate. But the poverty rate among those age 65 and over was 10.9%, 1.6 percentage points lower than the overall rate. The poverty rate for those ages 18 to 64 was 11.7%.

If you look at the south it is even worse

In 2022, more than half (9) of the 17 states in the South region had child poverty rates of 18.0% or more, down from 12 Southern states and the District of Columbia in 2021.

U.S. Poverty Rate Varies by Age Groups.

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Sounds like desperation, and a drive to squeeze out the maximum of management bonuses before things go officially pearshaped. Especially given a number of peers follow the same ‚strategy‘ and target clientele.

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Tellingly, at the last federal elections in 2021, Scholz campaigned as the continuity candidate following the long reign of CDU chancellor Angela Merkel, under whom he served as vice-president and finance minister in a ‘grand coalition’. He even aped her signature ‘Merkel rhombus’ hand gesture to ram this point home.

Merkel‘s CDU-led coalition governments merely administered the country for 16 years, pleasing retirees and those close to retirement, large demographic groups ensuring her reelection; given the ‚debt-brake’ (which doesn’t even exempt investments) there was no budget left for nice-to-haves like maintaining motorway bridges.

Scholz, after the Ukraine invasion, somewhat recognized the need for a ˋZeitenwende’ (switch between eras) but fell woefully short on leadership and action.

The frustrating thing is, none of the established parties have the credibility to turn things around, and all the right-wing AfD has to offer is populism spread by leaders of questionable (and that’s a kind word) character, rather than solutions.

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In that case, the German rate is only 25% higher than the one in the US, which doesn’t say good things about their safety net.

DB2

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Oddly-enough, Germany‘s definition of poverty is having a household income of less than 60% of median income - as opposed to a fixed number. So, not sure how comparable the numbers really are. More often than not, Germany‘s safety net is considered as too generous and expensive.

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Sounds like Welchism to me: short term maximization of financial metrics, which yields maximum executive compensation. The wide spread nature of this thinking is why I call it “McKinsey disease”. because McKinsey promotes the same playbook with all it’s clients. RS management did not expressly voice an “upmarket” strategy. Their comments reeked of equal parts intransigence and hubris, as they insisted the company did customers such a huge favor letting them buy RS product, that they should be happy to pay 40% more than what the same item cost at the competition.

Steve

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