The Water Carriers and Their End

In forty years the engineering service providers have accumulated an immense amount of knowledge. Hardly any of it belongs to them.

How the Water Carriers Came About

The large German engineering service providers almost all came into being in the same two decades, and almost all of them grew out of a single customer. In 1969 Horst Eckard founded a design office in Groß-Zimmern near Darmstadt that became EDAG; its first customers were Ford in Cologne, then BMW, and from 1973 VW. In 1974 Harry Bertrandt started out in his study in Möglingen, close to Daimler and Porsche. In 1978 the Aachen engine professor Franz Pischinger founded FEV as a spin-off of his university institute, and in 1983 IAV was founded as a spin-off of the Technical University of Berlin. Older still are AVL in Graz (1948) and Ricardo in England (1915).

They grew because the carmakers grew, but also for a second reason that has little to do with engineering. An engineer employed by a carmaker costs a great deal under the in-house wage agreement and can hardly be dismissed. An engineer at a service provider can be booked by contract and cancelled again. The service providers thus became the extended workbench of development and at the same time its buffer. Bertrandt had around 2,400 employees in 1999, more than 10,000 in 2013 and more than 14,000 in 2023. EDAG grew from eight employees in 1969 to more than 9,000.

The result was a triangle with clearly divided roles:

• The carmakers kept what defines the brand: concept, design, driving behaviour, the integration of all parts and the release for production. For the premium makers this long included the engine. There were indeed major in-house developments, from the TDI diesel and four-wheel drive at Audi to variable valve control at BMW.
• The large suppliers such as Bosch, Continental, ZF and Schaeffler developed entire systems themselves, from fuel injection to brake control to transmissions, and often delivered them as closed units with software into which the carmaker could not see.
• The service providers took over the hour-intensive work in between: detailed design, calculation, testing, test benches and above all calibrating engine management for fuel consumption and emissions. On top came entire model derivatives such as convertibles or estates, developed almost entirely out of house.

Over time, innovation moved more and more to the suppliers, and the carmakers became integrators who assemble other people’s systems and sell a brand. This became most expensive with software. Because control units were bought as closed units, the carmakers did not own the knowledge of the software in their own cars, and when they tried to catch up, the result at VW was the debacle of its software subsidiary Cariad.

How close the water carriers stood to their masters was shown by the emissions scandal. IAV, half owned by VW, pleaded guilty before a US court in December 2018 to having developed, together with VW, the software that recognised the emissions test and reduced exhaust treatment outside it. The fine was 35 million dollars, set at what IAV could pay without going under. A service provider that lives off one customer and is owned by that customer does not say no.

The Situation in 2026

According to an estimate by the German automotive association VDA, up to 90,000 people worked for German engineering service providers in 2019; today it is only 50,000 to 60,000. The individual cases:

The union IG Metall reports tenders that imply hourly rates of around 11 euros. An engineer is being asked for at the price of an unskilled helper.

The causes all lie outside the service providers:

• The carmakers are cutting their development budgets and bringing the remaining work in house to keep their own, barely dismissable engineers busy. The buffer is the first thing to go; that is what it was for.
• Development is moving to where cars are sold, above all to China, and to where engineers are cheap, to India and Eastern Europe.
• Chinese carmakers develop a car in about two years with their own engineers. They hardly need Western service providers for it.
• Projects are managed short-term, sometimes tied to sales figures, and are cancelled just as abruptly.

Were the service providers taken by surprise? Not by the technology. They had electric mobility in view early on; FEV built laboratories for electric drives while many carmakers were still hesitating. They were overrun all the same, because they could only develop what someone paid for. Whoever sells hours has no agenda of his own. He follows the budget, and when the budget disappears, the work disappears.

What Remains

Almost all service providers respond to the crisis with the same three steps: shrink, relocate abroad and look for new industries. Defence is named most often, alongside energy, aviation, rail and medical technology. That is not a transformation but a change of buyer. Whoever used to bill hours to Wolfsburg will bill them to Koblenz in future, the seat of the German armed forces’ procurement office. The business model stays the same, and so does the dependence.

Three groups are emerging:

1. The large ones are being absorbed into IT and consulting groups. This has long been under way: Capgemini bought Altran in 2020, AKKA and Modis became Akkodis within the Adecco group in 2022, and Accenture is named for VW’s stake in IAV. Engineering becomes one item there alongside software and consulting.
2. A few hold their ground in niches where knowledge and equipment are hard to relocate: test benches and testing, validation and type approval, control-unit software, certain defence fields. They become smaller but more stable.
3. The rest become staffing agencies or disappear. At hourly rates like those described by IG Metall, a German engineer cannot be kept.

Two kinds of service provider must be distinguished here. Some sell projects: IAV, Bertrandt, EDAG or FEV take on a development task and have test benches, laboratories and workshops for it. The others mainly sell people. Ferchau in Gummersbach, for example, has around 8,700 employees and a network of some 43,000 freelancers and places engineers through temporary agency work, work contracts or directly; Brunel and Hays work in a similar way. Their engineer sits at the carmaker or the project service provider and fills gaps there. They are the buffer beneath the buffer. Paradoxically, they often come through the crisis better precisely because they own nothing: no test bench stands empty, and whoever worked for a carmaker yesterday sits at a pharmaceutical or defence company tomorrow. The engineers pay the price, with shorter assignments and falling hourly rates. And nothing is created that lasts. Such agencies used to be a stepping stone to a permanent job at the carmaker; according to the engineers’ association VDI, that hardly happens any more.

One difference between the cases is striking: who owns a company determines its room for manoeuvre. FEV belongs to a family and was able to restructure early and on its own account. IAV is half owned by VW and has to wait to see what the group intends to do with it, up to and including a sale. Both grew out of a university, both can do the same things. It is not ability that decides, but the owner.

The deeper lesson is a different one. In forty years the service providers have accumulated an immense amount of knowledge, but hardly any of it belongs to them. The patents, the products and the models belong to the customers. What remains is what is in the employees’ heads, and they leave when the orders leave. In the next phase, therefore, it is not the largest who survives but the one who owns something: a process, a product, a licence, a skill that cannot be relocated to India.

Ownership alone is not enough, however, as a supplier shows that has everything the service providers lack. Brose in Coburg, a family company with around 31,000 employees and 7.7 billion euros in revenue, builds the mechanics in doors and seats and the drives for them, with its own products, its own patents and its own plants. Nevertheless Brose made a loss in 2024, is cutting almost every fourth job in development and administration at its expensive sites by the end of 2026, and in the words of its own chief executive earns only a tenth of what it would need to finance its investments itself. The reason: almost everything goes to the car industry. Whoever has only one buyer is under that buyer’s price pressure, whether he sells hours or window lifters. The sentence must therefore be more precise: whoever owns something that is also needed outside his old industry will survive. Brose at least has plants and products with which it can look for new customers. The service providers have only their hours.

How far this reaches is shown by Bosch, the largest supplier of all, owned by a foundation that does not have to look at quarterly results. The automotive division accounts for around 60 percent of group revenue of 91 billion euros. In October 2026 Bosch announced that it would spin off this division in Germany, with around 62,500 employees, into a separate subsidiary by 2027. Headquarters and advance development, a good 3,000 people, remain in the parent company. The stated reasons are closeness to customers and shorter decision paths. What a separate company also permits is mentioned in a subordinate clause: more room for partnerships. Siemens, Daimler and Continental have shown where such reorganisations lead. The head stays on top, the body becomes saleable. Even the largest owner protects itself by cutting off the dependent part.

That is also the chance of the small ones. They cannot win against the large ones on price, but they can on ownership, provided what they own is of use in more than one industry.

How dependence on a single large customer arises we described in “The Built-In Major Customer” (German only: „Der eingebaute Großkunde“), and how industrial policy became carmakers’ policy in “With Friends Like These, Who Needs Enemies”.

Sources. ecomento, crisis of automotive engineering service providers in Germany, 25.6.2026 · ingenieur.de, IAV streicht über 2000 Stellen, 11.8.2026 · Schwäbische Zeitung, Bertrandt macht weiter Verluste, 13.5.2026 · IHK Fulda, interview with EDAG CEO Harald Keller, Sept./Oct. 2026; EDAG, quarterly statement Q1 2026 · t-online Aachen, Automobilkrise trifft FEV, 25.2.2025; FEV, sustainability report 2024 · Eurofound, Capgemini Engineering Deutschland, July 2026 · Ferchau, facts and figures, as of 03/2025 · Brose, press release of 16.12.2025 · Automobil Industrie, Bosch ordnet Konzern neu, October 2026 · US Department of Justice, IAV GmbH to pay $35 million criminal fine, 18.12.2018 · Wikipedia, EDAG; Bertrandt, 50 years; IAV, history