Because Volkswagen’s crisis is Germany’s crisis
For the first time in its history, Volkswagen is considering closing plants in Germany. It is a worrying sign for the European automotive industry, but also a confirmation of Germany's economic difficulties, between energy costs and loss of competitiveness. Facts, numbers and insights
German automaker Volkswagen is considering closing plants in Germany for the first time in its eighty-seven-year history. This is a move which, beyond the probable trigger of clashes with local unions, could have wider consequences at a European level: in fact, it appears increasingly clear that the car industry of the Old Continent is not managing to compete with Chinese companies and the American Tesla in the transition to electric mobility.
THE CRISIS IN THE EUROPEAN AUTOMOTIVE INDUSTRY
The crisis in the European automotive sector , in fact, is general. Sales in Europe are still almost a fifth lower than pre-pandemic times and several manufacturers – including Renault, Stellantis and, indeed, Volkswagen – are operating more than thirty factories at levels that analysts consider unprofitable, writes Bloomberg . Among these factories there is also the Volkswagen one in Wolfsburg, the largest in Europe.
The context is aggravated by the large expenses necessary to finance the transition to electric (the demand for these vehicles, however, is not very solid and is very linked to economic incentives), by the high energy prices on the continent and by the loss of market in China, where local brands have become extremely competitive.
THE COLLAPSE OF STELLANTIS IN ITALY AND RENAULT'S PROPOSAL
In Italy, Stellantis' production in the first half of 2024 collapsed by more than a third: the historic plants of Melfi and Mirafiori were the most affected. The CEO of the French company Renault, Luca de Meo, has proposed an alliance between European car manufacturers that also includes the sharing of assets, on the Airbus model.
For comparison, Tesla's valuation is triple that of Volkswagen, Stellantis and Renault combined.
WHAT HAPPENS TO VOLKSWAGEN?
“If even Volkswagen is thinking of closing factories in Germany it means that the seas have become very rough, considering how difficult this process will be. The situation is very alarming,” Pierre-Olivier Essig, an analyst at Air Capital, told Bloomberg .
Volkswagen's assessment of the German factories is also notable because it contradicts the expansive line it has held for decades and made up of numerous acquisitions of foreign brands, including Lamborghini in Italy, Skoda in the Czech Republic and Bentley in the United Kingdom. The company – strongly influenced by the presence of Lower Saxony institutions in the shareholder base – also responded expansively to the "Dieselgate" scandal of 2015, investing in electric technologies; investments which, however, did not give the desired results.
VOLKSWAGEN AND THE GERMAN ECONOMY
Despite the complicated negotiations and costs associated with closing a plant, Volkswagen appears determined to proceed. In a statement released on Monday, the group's CEO, Oliver Blume, explained that “the economic context has become even more difficult and new operators are entering Europe. Germany as a business location is losing ground in terms of competitiveness."
Germany, in fact, is in serious economic difficulties: in 2023 the GDP contracted by 0.3 percent and in the second quarter of 2024 it decreased by 0.1 percent compared to the previous one. Heavy industry is suffering from the increase in energy prices, as the possibility of importing low-cost Russian gas has disappeared and all nuclear reactors have been shut down. Last Sunday's elections in the eastern states of Thuringia and Saxony, where the far-right AfD party achieved excellent results , also highlighted the dissatisfaction of a part of the German population with ecological transition policies based on intermittent renewable sources.
The possible closure of one or more Volkswagen plants risks worsening both the economic difficulties and the social tensions: in fact, the work not only of the thousands of directly employed people but also of the most numerous workers in the supply chain, such as the suppliers of components and logistics operators.
Not to mention that Germany could also see Intel's project for a microchip factory in Magdeburg, worth 32 billion dollars, disappear: the US company is in crisis and in the coming weeks will present a plan for cuts and reorganization of expenses .
FORTIS' COMMENT (EDISON FOUNDATION)
Referring to the situation in Germany, Marco Fortis – economist and director of the Edison Foundation – told Repubblica that "the stagnation has exacerbated social unease, also because in the meantime the Germans have been subjected to an inflation that they fear greatly and also consumption they planted themselves. If we then remove demographic growth from GDP, we understand that per capita income is not growing, a context that fuels populist forces that point to immigrants as the enemy."
According to Fortis, the German economic crisis can be explained by the "disarrangement of the middle class", on the one hand, and on the other by "the aristocratic attitude of large industry, especially the automotive industry, which supported the European harakiri of the internal combustion engine thinking that it could still dominate the world, while China was becoming a formidable competitor".
This is a machine translation from Italian language of a post published on Start Magazine at the URL https://www.startmag.it/economia/volkswagen-chiusura-stabilimenti-germania/ on Tue, 03 Sep 2024 08:04:05 +0000.