The News
Volkswagen, Europe’s biggest carmaker, is planning to cut factories and staff in its home country of Germany, workers’ representatives said Monday.
The Wolfsburg-based automaker will reportedly close three German plants and reduce the size of its other factories in the country, and will lay off tens of thousands of employees, the representatives said.
“This is the plan of Germany’s largest industrial group to start the sell-off in its home country of Germany,” the company’s works council head told employees, although she did not specify how many workers the decision would affect, Reuters reported.
Volkswagen has been in the process of overhauling its business for months, including shutting some of its German plants for the first time in its history. Despite being the second highest selling car brand in the world in 2023, Volkswagen has struggled with diminishing demand in both Europe and China and a transition to electric that has been slow to take off, as well as steep competition from Chinese companies.
The closures could put pressure on Germany’s government to more aggressively intervene in the country’s economy, which, while Europe’s largest, is experiencing a second consecutive year of contraction.
“The car industry remains the most important sector in Germany and in this branch, VW is the alpha male. When the giant wobbles, then everything wobbles,” an industry analyst told German media last month.
SIGNALS
German car firms can’t compete with Chinese industry
Germany’s auto industry is faltering in large part because China’s burgeoning electric vehicle sector has outcompeted German cars both in China, and increasingly, in Europe as well. China is Volkswagen’s biggest market, but sales have steadily declined in recent years as technologically advanced Chinese EVs have grown. “If you lose your biggest and most profitable market, that’s going to affect the whole system,” an auto analyst told Politico. Chinese carmakers are also taking aim at Europe’s luxury car market, developing limousines and SUVs to take on Mercedes, BMW, and even Rolls-Royce, Bloomberg reported.
German economy expected to shrink this year
Germany is facing its first two-year recession since the early 2000s: Berlin predicted earlier this month that GDP would shrink by 0.2% this year, performing worse than all other major industrial economies. “The country, once a motor of European growth, has become a drag,” The Economist wrote. The International Monetary Fund has argued Germany’s woes stem to years of underinvestment, an aging population, and too much bureaucratic red tape that has ultimately stifled productivity. The government has struggled to mount a unified response to the economic troubles so far, with all the governing coalition’s member parties proposing different solutions, Deutschlandfunk reported.
European carmakers nervously watch US election
Republican presidential candidate Donald Trump has threatened “very substantial tariffs” on vehicles made outside the US, sparking concern among analysts that the US market will become increasingly challenging for European car manufacturers. German automakers should be “very worried,” one expert told Deutsche Welle, which also reported that German investments in EV production in the US could also be at risk if Trump rolls back industry subsidies brought in under President Joe Biden. Almost half of all German companies with US trade ties believe a Trump presidency would negatively effect their business, and some experts believe the Republican’s tariff proposals could cost the German economy as much as $190 billion over a four-year term.