The German automobile giant is reeling under the blows of the chinese competition. For the first time in its 87-year history, Volkswagen is preparing to close plants in Germanya move that marks a momentous turning point for the German automobile industry and the country’s economy. The Wolfsburg company, which heads a group on which prestigious brands such as Audi, Porsche, Lamborghini, Bentley and Ducatihas announced a restructuring plan unprecedented that includes the closure of three factories and the elimination of tens of thousands of jobs. This decision comes after weeks of tension with the unions and is part of a deep crisis in the European automobile industry.
An unprecedented restructuring
As reported by Reuters and confirmed by the economic newspaper Handelsblatt, The group’s board of directors has developed a savings plan of about 4,000 million euros. The measures include the closure of at least three of the ten plants that the group has in Germany (six in Lower Saxony, three in Saxony and one in Hesse) and the elimination of tens of thousands of jobs among the nearly 300,000 employees that the group has in the country. The situation is so serious that the company has decided to impose a 10% pay cut and freeze pay increases for 2025 and 2026. The Volkswagen crisis comes at a particularly difficult time for the German automobile industry. Other premium brands in the group, such as Porsche, are also experiencing difficulties. Porsche announced a review of its dealer network in China due to plummeting demand, while at the end of September Volkswagen issued its second profit warning (downward revision of earnings estimates) in just three months.
The problem with China
The problem for Volkswagen and other German manufacturers is, at its core, very simple: It costs too much to make cars in Germany. Thomas Schaefer, the head of the Volkswagen division, clearly admitted it in an analysis reported by Reuters: “German factories are not productive enough and have low costs. between 25 and 50% higher than the objectivesmeaning that some centers are twice as expensive as their competitors.” This cost disadvantage (due primarily to high energy and labor costs in Germany) has become unsustainable just as the market is shifting toward electric cars. A structural problem that puts the competitiveness of the entire group at risk.
And this is where China has cornered Volkswagen. The Asian country is the most important market for the German group, which sells there 40% of their cars. But the Chinese manufacturers, with BYD at the helmare revolutionizing the electric car market with much lower prices, made possible by lower production costs. The result? BYD has even surpassed Tesla and has become the world’s leading producer of electric and plug-in hybrid cars, while Volkswagen is losing customers and market share. The situation is so serious that even Porsche, the group’s luxury brand that has always guaranteed great profits, has had to announce a cut to its sales network in China. The crisis quickly became a domino effect: plummeting sales in China, losses in Europe, two profit warnings in three months and a stock price that has lost almost half its value in five years.
The clash with the unions
The tension is maximum in Germany. On Monday, October 28, workers stopped production for one hour at eleven plants, where meetings were held to update employees on the status of negotiations. The unions accuse management of dumping the consequences of wrong strategic decisionsin particular on the transition to electric energy and pricing policy. The spokesman for the German Government, Wolfgang Büchner, assured that Berlin maintains a close dialogue with the company and worker representativesand stressed that the objective is to maintain and secure the jobs of the nearly 300,000 employees that Volkswagen has in the country. The automobile sector is one of the pillars of the German economy, and the Volkswagen crisis comes at the worst possible time for the country.
Meanwhile, the unions have already announced that if an agreement is not reached, the strikes in all the group’s German plants They could start on December 1. This perspective worries the Government of Chancellor Olaf Scholz for two specific reasons: the German economy is already contracting for the second consecutive year and the federal elections are approaching, in which the government coalition falls sharply in the polls.
Article originally published in WIRED Italy. Adapted by Mauricio Serfatty Godoy.
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