The Decline of DKW

In 1956 Auto Union DKW appeared to be on a path towards recovering her position as one of Germany's leading auto manufacturers. The new F93 was selling well and sales of motorcycles and the new Hobby scooter and Hummel moped were on the rise. But despite the apparently positive outlook signs were appearing that things were not well inside Auto-Union. From the mid 1950s the health of the two key figures in the new Auto-Union, Managing director, Dr-Ing Richard Bruhn and Deputy Director, Dr Carl Hahn began to decline and the company began to drift. Dr Bruhn had never been a hands on manager, but his prestige was important to smoothing the political and financial path. Dr Hahn, who had been a key figure in DKW since 1919, stepped into the void, but in 1957 he suffered a serious heart attack and never fully recovered.

Four of the key players, left to right: Technical Director, William Werner, Cologne banker, Frederich Carl Freiher von Oppenheim, Managing Director, Richard Bruhn, and Deputy Director, Carl Hahn.

Symptomatic of the company's lack of strategic direction during this period was its inability to develop a successor to the DKW 3=6. The 3=6 had been developed during the pre-war period as a competitor to the Volkswagen. The car had finally hit the market with its original three cylinder engine in 1954 to great acclaim and strong sales to the Auto-Union faithful, but sales plateaued in 1956 and then began a contraction of up to 30% per annum. As surprising as it sounds to a modern audience, many Auto-Union technical staff had remained with, or returned to, the nationalized IFA company in East Germany, where their skills in two-stroke engineering were warmly welcomed. Consequently, Auto-Union’s engineering department came to be dominated by former Horch employees who looked on the DKW car with some disdain. However, it soon became obvious to many that the company did not have the capital to revive either the Horch and Wanderer brands, so they too moved on, further weakening the company's design department.

Nothing exposed Auto-Unions problems more than the failed STM project. The mid 1950s saw a boom in the sale of small, simple, cheap no frills cars, appropriate for the harsh economic times. While virtually every auto and motorcycle company in Germany threw some hotch-potch machine into the market, Auto-Union had nothing to show.

Despite DKW's pre-war heritage as a small car maker, the company seemed to have no idea where it was going. The vehicle design went through dozens of iterations, from a three-wheeled configuration, then to four. Tandem seating, then to three seated in a lozenge pattern, and then finally four seated in traditional layout. The body styling roved from bizarre egg-like bubblecars to space-age streamliners, before morphing into something akin to a conventional sedan. None of the designs produced were remotely practical or appealing. The company made the apparently sensible decision to use Duraplast for the bodywork to keep weight and costs down. However, they found this to be more complex than they anticipated. In contrast, Auto-Union's former colleagues in Zwickau designed and delivered the iconic AWZ P70 within 12 months and were soon exporting the practical little car to both east and western markets.

Cheers 1957! Although something of a compromise vehicle, being essentially a pre-war DKW F8 chassis and engine with modern bodywork, the AWZ P70 was successful in domestic and export markets.

Similarly, DKWs motorcycle division was failing to tap into a similar market opportunity. The Italian Vespa had exploded onto the market in 1952 and sparked a motoring revolution. Everyone jumped on the scooter bandwagon. DKW began development of a large touring scooter but after several years of development the project was cancelled as being economically nonviable.

In 1956 DKW introduced the pioneering Hobby scooter. Targeted specifically towards the female market, the attractive Hobby was the first scooter with automatic transmission. The Hobby was followed in 1957 with the Hummel moped, which also was the first moped with a 3-speed gearbox. The Hummel and Hobby were innovative and appealing for their market but arrived too late for the scooter boom, which peaked in 1957 before beginning a precipitous decline.

Nor was DKW able to recapture the success of their famous pre-war motorcycle racing department. The company had thrown a lot of energy into reviving its motorcycle racing heritage, but racing success could not stave off the industry-wide collapse in motorcycle sales that began in 1956.

The company's financial position was quickly becoming precarious, to the great concern of its major shareholders. The company had last paid a dividend to its shareholders in 1956 and with the downturn of sales it did not look like there would be another for a while. In 1957, multi-industrialist Frederich Flick, who owned almost 80% of the company's shares, demanded the Board take urgent steps to improve the company's profitability or risk being sold to a competitor. Directors Bruhn and Hahn chose this moment to retire and the energetic Dr William Werner, former Director of Technical Development in the pre-war Auto-Union company stepped into the Managing Director's shoes.

Werner was scathing in his assessment of the previous management’s lack of firm direction. He was particularly critical of the company’s disorganized and inefficient production facilities, which saw components for the 3=6 cars manufactured at separate facilities and then transported to the main factories at Dusseldorf and Ingolstadt for assembly. He unsuccessfully attempted to close down the company’s expensive but under-utilized Ingolstadt factory. The best he could achieve was a rationalization of the production line and dismissal of 5000 staff.

In the meantime, Flick determined to divest his investment in Auto-Union and used his position on the Daimler-Benz board to propose a merger with Auto-Union. Daimler-Benz dominated the German market for large and luxurious cars, but had struggled to develop an effective small car. They saw in Auto-Union the potential to use the company as a discount brand to help them break into the US market. They were however concerned about the company’s long-term viability, especially DKW's determination to persevere with their two-stroke engine, despite flagging sales. Daimler-Benz decided not to press Auto-Union on the matter at this time, but suggested that the 3=6's successor would need to be powered by a four stroke motor.

They also had no intention to carry Auto-Union's loss making DKW motorcycle division. Werner, who had come originally from Horch and had little nostalgia for DKW's motorcycles, willing found a buyer in the struggling Nuremberg manufacturer, Victoria. Poor management and an insistence on building high-quality, but loss-making motorcycles, had pushed Victoria to the brink of bankruptcy, but they saw in the DKW purchase an opportunity to capitalize on the DKW brand name to effect a recovery. Victoria’s bankers threw the bankrupt motorcycle company, Express, into the merger as a condition of the deal. The three companies were grouped together under the name Zweirad-Union and were headquartered in Nuremberg. Zweirad-Union would struggle on into the 1970s in the moped and lightweight motorcycle class, eventually being absorbed into the Sachs group, which continues to this day.

The designs and tooling for the DKW Hobby scooter were sold to the French Manuhurin company.

In late 1957 Frederich Flick sold his 80% shareholding in Auto-Union to Daimler-Benz. Over the coming months the remaining shareholders, including Frederich Carl Freiher von Oppenheim, also sold up their shares and by mid 1958 Daimler-Benz had gained 100% ownership of the company.

Werner continued his shake up at Auto-Union. The long-running STM project was immediately shut down, despite the project finally having completed pre-production trials. With frustrated DKW dealers clamoring for the company to launch something in the kleinauto market, Werner, with characteristic dash, designed an entirely new small car and rushed out a prototype for the 1957 Frankfurt Motor Show. Initially designated the DKW 600, it was just enough to whet the appetite of the dealer network. The car was eventually released as the DKW Junior in 1959.

To satisfy the demands of the dealer network, Auto-Union heavily promoted the new DKW 600, unveiled at Frankfurt. The car would take another 18 months to reach production as the DKW Junior.

The DKW Junior was just what the company needed, but it was at least three years too late to capitalize on the kleinauto boom. Fortunately, Werner had accounted for this in his design and by the time the car was ready for the road it was no longer a kleinauto but pitched at the budget sedan market, with an uprated 741cc engine and a roomy, modern interior. The car’s modern styling was also particularly appealing to the contemporary consumer and Damiler-Benz actively promoted the model in the US export market, where it sold very well.

Later Mexican advertising of the Junior's successor, the DKW F12. DKWs were sold through the Mercedes-Benz network as Mercedes' budget offering. The F12's styling was complimentary to Mercedes' products.

While the Junior and its successors went some way to clawing back Auto-Union’s lost market position, it came at considerable cost. To meet production targets a complete overhaul of Auto-Union’s disjointed production facilities was required, so the company went cap in hand to the Bavarian state government. In order to secure state subsidies, Auto-Union agreed to the government’s demands that the new car would be built at the Ingolstadt plant and that all recently dismissed workers were re-employed. https://dkwautounionproject.blogspot.com/2020/11/1962-auto-union-ingolstadt-report.html

Having been forced to expand the Ingolstadt operation, Auto-Union agreed to liquidate the company's Dusseldorf plant. At this time the Dusseldorf plant was producing the DKW F93 coupe and Schnellaster van, but at a much reduced volume. Daimler-Benz took over the plant, converting it for the production of Mercedes-Benz light commercials. Manufacture of the Schnellaster van was outsourced to the Spanish company, IMOSA, where it would eventually evolve into the Mercedes-Benz powered DKW F1000 L.

The F1000 would eventually be rebranded as a Mercedes-Benz in 1975.

Production of the F93 was stopped in late 1958 and a revised model, the Auto-Union 1000 and 1000S, with new fittings and a larger engine, recommenced at Ingolstadt. A trickle of F94 four-door sedans and universals, never a popular seller in Germany, were built through 1959 from a stock of bodies built at Dusseldorf in 1957 and 58.

Even the Federal government felt it necessary to intervene in Auto-Union's affairs. The company had developed a four-wheel drive off-road vehicle in response to a tender to German auto manufacturers, as a replacement for the US Jeep 1956. The Munga was a tough machine and proved successful in trials, but the army still disdained DKW's two-stroke motor and expressed a preference for a Porsche designed off-roader. Recognizing Auto-Union's dire financial position, the government intervened in the tender process to ensure the contract went to Auto-Union. The Munga would provide sterling service to the Bundeswehr and would be widely sold internationally.


Auto-Union attempted to tap into the younger market with the American influenced styling of the sleek 1000SP. Unfortunately the 1000SP failed in all prospective markets. American consumers were not interested in a quirky, underpowered two-stroke sports car, while European consumers were not prepared to pay sportscar prices for what was now being perceived as a budget marque.


DKW’s two-stroke heritage, which had served it so well for so long, was seen by consumers as a liability. While the older generation, who appreciated DKW’s pre-war cars and motorcycles for their reliability and cost efficiency, remained firmly wedded to the brand and had no problem with two-strokes, the company was failing to attract new customers. The demise of DKW’s motorcycle arm had also had an enervating influence on engine development as racing had been the incubator for design innovation. The trusty 3=6 engine had scarcely changed since 1954, except for gradual uplifts in capacity and horsepower. DKW’s engineers however, like their counterparts at Saab, remained convinced of the merits of the two-stroke and were working on a new generation of high efficiency engines. These engines showed real promise if they could be developed, but time was running out.

In the meantime, market research had indicated customers did not like mixing oil in the fuel, a ‘dirty’ and troublesome process that is still declared today by people who don't know what they are talking about as one of the primary drawbacks of two-strokes. DKW engineers perceived that addressing this issue would alleviate customer concerns. The solution, proclaimed loudly in Auto-Union marketing, was the Lubrimat system. The Lubrimat was an oil reservoir in the engine bay that injected the required quantity of oil into the carburetor, removing the need to mix oil into the fuel tank. Introduced in late 1961 in the DKW F12, it proved to be a disaster. As simple as the Lubrimat appeared to be, it had been rushed into production with insufficient testing. Lubrication proved to be inconsistent, over or under oiling the fuel mix. In cold weather, the oil became viscous and blocked in the Lubrimat, resulting in inevitable engine failure. The issues were quickly overcome, but the damage was done. Sales of the new DKW 12 bottomed out.


Daimler-Benz were becoming increasingly concerned about the problems at Auto-Union and began to directly intervene in the management of the company. A new car project to replace the by now quite old-fashioned 3=6 had been underway for some time so Daimler-Benz appointed engineer Ludwig Kraus to take over. Kraus insisted the new car sport a four-stroke engine and presented the Auto-Union team with a newly developed, flat four boxer engine and a contemporary styled sedan body they had been working on for a mid-range Mercedes-Benz that had failed to proceed.

The design of this Mercedes-Benz prototype would be the template for the DKW F102.

Auto-Union adapted the body, but the boxer engine proved to be a failure. The necessity of getting a new car onto the market as soon as possible led to a compromise that would be the last hurrah for the two-stroke engine. DKW engineers had a newly developed 1133cc two-stroke production ready and fitted it to the car, which was released as the DKW F102 in August 1963.

The new engine successfully solved the Lubrimat problems and the F102 went some way to restoring DKW's fortunes. Daimler-Benz management however regarded the new car as a stop gap measure only. Kraus returned to Mercedes to find a suitable powerplant, returning in 1964 with the M118 medium compression engine, which had nearly completed development. The new engine was fitted into a slightly restyled F102 body and was eventually released in 1965 as the Audi F103.
https://dkwautounionproject.blogspot.com/2017/07/audi-f103.html

For DKW however, it was too little too late. Following the Lubrimat debacle, sales of DKW cars had plummeted and the Ingolstadt factory was forced to slow production. With production lines standing idle, Auto-Union was forced to consider laying off staff. This would have been politically disastrous as state government tax breaks the company had received were dependent on maintaining employment levels. Nor was Daimler-Benz in a position to transfer any production to Ingolstadt, having their hands full with the Dusseldorf plant. Fortunately, there was another auto manufacturer who was desperately in need to additional capacity - Volkswagen.

Against all expectations, Volkswagen's sales had never slackened since the company had struggled back to life in 1946.  It seemed that demand for the eccentric 'people's car' was limited only by the company's ability to push them out the door. New factories had been set up in Germany and all around the world but they still needed more capacity. To keep its workforce employed, Auto-Union agreed to lease production capacity to Volkswagen.

As tens of thousands of Volkswagens began assembly at Ingolstadt an unpleasant fact quickly became apparent - Volkswagen production at Ingolstadt far exceeded that of DKWs and Audis. Daimler-Benz saw the writing on the wall - Auto-Union was no longer viable and it would be better to sell the whole Ingolstadt plant over to Volkswagen. Volkswagen were amenable to the idea and the deal was done.

Volkswagen had no illusions about what they were buying. Their interest was entirely one of increasing their industrial capacity for Volkswagen Beetle production while Auto-Union was barely an afterthought. The F103 project was nearing completion so they opted to let it continue. The only change they made was to rebrand the car as the Audi F103. The old DKW F102, the last gasp of DKW's two-stroke technology, disappeared into oblivion. She was soon followed by Auto-Union's designers, engineers and management as Volkswagen set about slashing and burning. Auto-Union was dead, it just needed to be buried.

But strangely, Auto-Union did not die. In 1967 Volkswagen sales peaked and then began to ebb. Suddenly Volkswagen was facing a production surplus. Long ignored warnings about the lack of development of a replacement for the Beetle suddenly became front of mind. Volkswagen had been attempting for years to develop a Beetle replacement, but without success. This wasn't to say the designs developed over the years weren't viable per se, but Volkswagen management under Heinrich Nordhoff had become extremely risk adverse, and Nordhoff's mantra of small, incremental change had stifled the confidence of Volkswagen's design department. Volkswagen needed an injection of new blood, new ideas. It now seemed prudent not to wind up Auto-Union after all; at least not while the Audi 100 was selling. But what exactly could Volkswagen learn from Auto-Union?

That's another story.....

A link to Der Spiegel story from 1957 about DKW's small car odyssey
https://dkwautounionproject.blogspot.com/2019/08/auto-unions-small-car-odyssey.html