Berlin (AFP) - Chancellor Friedrich Merz will Thursday host crisis talks with German auto industry leaders in a bid to navigate myriad challenges, from a looming EU combustion-engine ban to growing Chinese competition.

Led by titans Volkswagen, BMW and Mercedes-Benz, the German auto sector has long been one of the flagship industries in Europe’s biggest economy but now finds itself in the throes of a painful downturn.

From falling sales and profits to waves of layoffs, the sector has generated a steady stream of bad news for months.

Automakers and suppliers are struggling with a slower than expected electric shift, fierce competition from Chinese EV makers and US President Donald Trump’s tariffs blitz.

“We agree that the coalition wants to do everything possible to ensure a bright future for the German automotive industry,” Merz told a press conference Thursday ahead of the talks at the chancellery in Berlin.

He said the government would provide three billion euros ($3.5 billion) in incentives for EV purchases, which would be aimed at low- and middle-income households, without giving further details.

The coalition had already announced this week plans to extend a tax break on buying electric cars by five years.

Merz will be joined at the two-hour talks by top auto industry figures, several government ministers and union representatives, with a statement expected at 1300 GMT.

There were also signs that the coalition, comprising Merz’s centre-right CDU party and the centre-left SPD, might be close to reaching a common position on the EU’s plan to ban sales of new combustion-engine vehicles from 2035.

With German auto giants fearful it could hit their business as the shift to EVs moves slowly, Merz has spoken out forcefully against it.

- ‘More flexibility’ -

Senior SPD figures, notably the environment minister, had recently insisted Berlin should continue supporting the policy.

At Thursday’s press conference, however, Finance Minister Lars Klingbeil of the SPD said he agreed “more flexibility” was needed on the ban, and believed the government would “quickly decide” its position after the talks.

Media reports suggest the coalition may push for the ban to be watered down, although not scrapped entirely. The EU had already agreed to fast-track a review of the policy.

Hildegard Mueller, president of German auto industry association the VDA, called for steps including easing the 2035 CO2 reduction target and strengthening the role of technologies such as renewable fuels and plug-in hybrids.

For the shift to EVs to gather speed, conditions also had to be improved, “for example in terms of charging infrastructure, power grids, and charging prices”, she told AFP.

Whatever Berlin decides, it will still need to persuade other EU members to back it.

The Handelsblatt financial daily reported that the government was also examining the idea of allowing car manufacturers who use “green” steel made in Europe to face less stringent CO2 reduction targets.

But it is a complicated topic, and would need agreement from Brussels, it said.

Auto industry experts were sceptical that any major announcements would emerge from the meeting that could help the beleaguered sector.

Frank Schwope, an auto industry expert from the FHM university in Cologne, told AFP there could be some small announcements, such as investments in battery research.

But he added those attending “will discuss a lot and decide little, in part because decisions are made at the European level”.

The auto sector’s crisis reflects broader problems for the Germany economy, which has faced two years of recession due to a manufacturing slump and weak demand for its exports.

In the latest sign of weakness, data released Thursday showed that German exports unexpectedly dropped in August, pulled down by another fall in shipments to the United States as the tariff blitz takes its toll.