Shifting gears in Germany’s automotive disputes landscape

As original equipment manufacturers (OEMs) move to protect margins through restructuring and cost-cutting, pressure is increasingly being transferred down the supply chain, heightening the likelihood of disputes involving suppliers, joint ventures and cross-border commercial agreements.

Structural headwinds and competitive pressure

Though the German automotive market has stabilized, it remains below pre-pandemic levels. Production and exports remain below 2019 volumes, and the German Association of the Automotive Industry (VDA) expects both to decline slightly again in 2026.

At the same time, the sector is being squeezed by cyclical and structural pressures. German automakers remain highly exposed to US tariffs through their global supply chains and North American operations, while elevated domestic labor and energy costs continue to erode profitability. The industry’s heavy reliance on exports also leaves it particularly vulnerable to geopolitical instability, trade policy shifts and weakening global demand.

Competition from Chinese manufacturers is intensifying these pressures, particularly in the EV market, where aggressive pricing and rapid technological development are challenging established players and placing additional strain on margins.

Together, these dynamics are forcing manufacturers and suppliers alike to rethink investment strategies, accelerate restructuring and place supplier relationships under greater commercial scrutiny.

How supply chains are bearing the burden

Margin pressure is already visible across the sector. BMW, Mercedes-Benz and Volkswagen all reported weaker profits or margins in 2025, while Volkswagen has announced plans to reduce approximately 50,000 jobs in Germany by 2030.

The strain is particularly acute among suppliers. As OEMs push for pricing concessions and attempt to offset rising costs, suppliers are increasingly being asked to absorb higher labor, energy and raw material costs while continuing to invest heavily in batteries, electronics and software. Many smaller and mid-sized suppliers lack the balance sheet flexibility to absorb these pressures, leading to broader restructuring across the supply chain. Bosch and ZF Friedrichshafen have both announced significant job cuts linked to restructuring within their automotive divisions.

Fault lines for future disputes

As commercial pressures intensify, disputes across the automotive value chain are becoming increasingly frequent. Long-term agreements negotiated under very different market conditions are now being tested by rising costs and weaker demand.

Supply chain and pricing disputes

OEMs are seeking pricing concessions and contract renegotiations, while suppliers are resisting efforts to absorb higher input costs. As a result, disputes are emerging over pricing adjustment mechanisms, cost-sharing obligations and the enforceability of long-term supply agreements, particularly where energy, raw material and labor costs have risen materially since contracts were signed.

In Germany, many of these disputes will not turn simply on whether costs have risen, but on how the contract allocates risk. Suppliers may seek relief through price-adjustment clauses, hardship provisions or § 313 of the German Civil Code, while OEMs will focus on agreed risk allocation, notice requirements and the enforceability of long-term commitments. Where standard terms are used, AGB control may also become relevant, particularly for one-sided price, volume or termination mechanisms.

The risk is no longer theoretical: In March 2026, a payment dispute between Stellantis and ZF Chassis Modules halted production at Stellantis’ Toluca plant, illustrating how pricing disputes with a single component supplier can quickly become a production-critical event. For funders, these disputes are attractive where the claimant can show a clear contractual entitlement, contemporaneous evidence of reliance or cost absorption, a credible damages model and an enforceable recovery path.

Recent survey evidence points in the same direction: In Shoosmiths’ 2026 Litigation Risk report, automotive respondents identified supply-chain logistics as one of the most common dispute categories, while many businesses reported reassessing international suppliers and renegotiating supplier agreements in response to geopolitical risk.

Volume and capacity-related disputes

Suppliers that expanded capacity based on OEM production forecasts may seek compensation when expected volumes fail to materialize, while OEMs may attempt to scale back or exit their contractual obligations. This is increasing the likelihood of disputes over minimum purchase obligations, take-or-pay provisions and long-term assumptions around production volumes and capacity utilization.

Joint venture and partnership tensions

As manufacturers localize production and expand investments in batteries, software and EV technologies, joint ventures are becoming more complex and strategically important.

Diverging strategic priorities, uneven capital contributions and underperforming assets are creating greater potential for conflict between JV partners. Disputes are increasingly arising over governance rights, funding obligations and performance expectations. Recent cases highlight how these tensions can escalate into formal disputes and exits, including arbitration proceedings resulting in the forced transfer of ownership stakes, as well as the unwinding of long-standing partnerships in China amid shifting market dynamics.

Cross-border and geopolitical risk

Tariffs and trade restrictions are adding another layer of complexity, particularly where long-term contracts did not anticipate such sudden regulatory or cost changes.

These developments are increasing the likelihood of disputes over force majeure provisions, tariff pass-through mechanisms and responsibility for unexpected cost increases. Cross-border supply arrangements may also come under strain where geopolitical tensions delay production or undermine the commercial assumptions underpinning long-term agreements.

Managing disputes in a transforming industry

As companies renegotiate contracts and reassess long-term investments, disputes are likely to become an increasingly common feature of the automotive landscape. Yet many businesses may remain reluctant to deploy additional capital to disputes while managing profitability and restructuring pressures.

Legal finance can help address this challenge. By providing third-party capital to fund litigation, arbitration and related proceedings, legal finance enables companies to pursue high-value meritorious claims without diverting capital from core business priorities. In addition to covering legal fees and expenses, monetization finance provides businesses with immediate capital by advancing a portion of the expected entitlement of a pending claim, judgment or award, allowing companies to unlock the value of legal assets rather than waiting years for matters to settle or resolve at trial.

For automotive businesses, legal finance is particularly relevant where a supplier has a high-value claim but limited appetite to spend scarce liquidity on arbitration; where an OEM wants to pursue recovery claims without increasing legal-budget volatility; where a business in restructuring wants to monetize a pending claim or award; or where a group has multiple related claims across supply, warranty, technology or JV arrangements that could be financed as a portfolio.

The advantages can extend well beyond funding alone. Legal finance can help preserve cash flow, create budget certainty and mitigate the earnings impact associated with large disputes, as non-recourse financing mitigates downside risk if a matter is unsuccessful. Increasingly, companies are also using legal finance as a strategic capital tool, transforming disputes from a cost center into a potential financial asset while freeing up capital for restructuring, technology investment and broader growth initiatives.

For companies across the automotive value chain, proactively managing dispute risk and liquidity will be critical during this period of significant industry transformation.