At first glance incredible news shocked the world's media this week: the German car manufacturer Volkswagen plans to close a number of its plants in Germany. The sensation is that the company has never in its almost 90-year history stopped production for economic reasons in its territory. And if they closed factories, then rarely and only abroad.
The last time this was done in Russia - 2 years ago, but even then this decision was purely political. But in Germany itself - never. Here, the concern almost every year announces, if not the opening of new plants, then their expansion. And then it happened…
The concern is preparing to close one car assembly plant and one component manufacturing plant in Germany. And it was officially announced. These measures are presented as “necessary to reduce costs and increase the sustainability of the concern in difficult economic realities”. What can be done - labor in Germany is very expensive, the social burden is high, and if nothing is done, the shadow of bankruptcy may soon loom over. Moreover, even such popular models as Golf or Tiguan are no longer profitable. The restructuring will take place as part of the concern's program to reduce operating costs and is expected to save around EUR 4 billion.
This program was announced in June 2023, while at the same time setting the target of reducing costs by EUR 10 billion by 2026 and achieving an operating profitability of 6.5%. Meanwhile - in the first half of 2024 - the last indicator, on the contrary, decreased - to 2.3%. Apparently, the time has come for strict and unpopular measures.
In general, about 650,000 people work in the Volkswagen Group's enterprises worldwide, of which about 300,000 - in Germany. Volkswagen has six car assembly plants in Germany: in Wolfsburg, Hanover, Dresden, Osnabrück, Zwickau and Emden. So, although the candidates for relegation have not yet been officially named, the main contenders - not very efficient - factories in Dresden and Osnabrück.
Rumors about the closure of the Glass Factory have been circulating in Dresden for a long time, almost since the foundation of this “model enterprise” in 2002. The then head of the concern, Ferdinand Piech, was very proud of this plant. Of course: any buyer can come to Dresden and watch through glass walls (hence the name) how quickly and efficiently their car is assembled. Well, it's beautiful, modern, but... too expensive and unprofitable. We started with premium models, and now in the “Glass Factory” Only the Volkswagen ID.3 electric hatchback is produced in Dresden. Its demand is low and there is no queue of buyers.
What about the VW plant in Osnabrück? They currently produce the VW T-Roc Cabriolet, the large VW Arteon liftback and the Porsche 718 sports car. And all these models, in line with the strategy, will not have successors — so this plant is also among the candidates for relegation.
In addition, the concern has several enterprises producing components. Apparently some of them are also planning to close.
By the way, 2 months ago the subsidiary brand Audi announced the early termination of production of electric crossovers Audi Q8 e-tron and Q8 Sportback e-tron at its plant in Brussels. The reasons are the same as for the entire Volkswagen Group as a whole: weak demand for electric vehicles and high labor and energy costs.
On the question of Volkswagen, of course, one must take into account the fact that VW has always been considered one of the main employers in Germany (attractive and reliable) - stable work, high wages, generous social guarantees. So it is not surprising that the company's plans have caused a storm of indignation, and not only from the trade union committees, but also from the local authorities, who promise to show the most serious resistance to the announced intentions.
In general, if we take the “Hamburg bill“, then not only specific VWs and not only the car industry, but all other sectors of German industry are now experiencing serious problems. Volkswagen - although an iconic example, it is far from the only one. Back in February 2023, the world's largest chemical concern BASF announced plans to close part of its production at its main site in Ludwigshafen. In July 2024, executives at ZF (the world's largest supplier of automotive components) announced their intention to cut 11,000-14,000 jobs - a quarter of all staff in Germany. And according to the German Chamber of Commerce and Industry, up to 40% of German industrial enterprises plan to reduce or transfer their production abroad.
It is a fact that many energy-intensive industries relied on “green”, renewable energy, but in the last year the mood has changed. After all, the government subsidies that were previously generously distributed by both federal and state governments to those who go green. technology is greatly reduced. And without them, for now, such energy turns out to be unprofitable, to put it mildly. So far "success" were offset by cheap pipelined Russian gas, but now it's gone. And industrialists saw the transition to renewables encouraged by the authorities not as an opportunity but as a threat to business.
That is if you look at the whole picture. But the particular Volkswagen concern accumulated many internal problems of its own. Many of them are related to a hasty decision about the “final and irrevocable” transition to the production of electric vehicles only and with the company's management. The situation in the world (and in particular the car market) today is changing extremely quickly and unpredictably. In general, you need to be able to make quick decisions, often out of the ordinary. Judging by the observations, the leaders of the leading German car manufacturer did not have such skills (even repeated changes in management did not help). As a result, one failure followed another.
Thus, a crisis in one of the IT departments led to a delay in the market entry of many new Volkswagen models. Due to problems encountered during the development of our own platform for electric vehicles, we even had to negotiate with a concern from the People's Republic of China to use its platform. And here it suddenly became clear that the demand for electric cars around the world is slowing down (in particular, due to a reduction in government support). In this situation, VW management was forced to extend the life cycle of key models with internal combustion engines (ICE), for example the Golf. But all promising developments of internal combustion engines were practically stopped. Also, Volkswagen (and other European companies) greatly overestimated the market potential of their electric cars, especially the Volkswagen ID.3. A few years ago, the German concern ambitiously stated that by 2025 it would become the largest manufacturer of electric vehicles in the world. Now they are modestly silent about it.
Incidentally, Volkswagen is also losing its position in China, where it was the number 1 manufacturer for decades. In the second quarter of 2024 alone, VW sales there fell by 19%. The concern's electric vehicles are not in high demand in China because "electric trains" are, and hybrids from national manufacturers are more technologically advanced, more interesting in design and cheaper. Chinese electric car makers are already pushing out VW in Europe, and local authorities are hoping to solve this problem with new, high import duties (they were introduced this summer and reach 40%). But the measure also hit European companies, because many models for the whole world are produced only in China. And now a VW made in China cannot be imported into the EU so easily.
But among the main reasons for the crisis in German industry is still extremely expensive labor. It is not without reason that in the last 20 years, VW (and all other European car manufacturers) have consistently moved production first to Eastern European countries (including Russia) and China.
But there is also a conspiracy theory about the emergence of problems in the concern. The fact is that analysts have long noticed: as soon as any global car manufacturer approaches the desired figure of annual sales worldwide — 10 million cars immediately start problems that can lead to significant sad consequences. There are many examples of this. For example, 15 years ago before the “magic“ the figures reached the American concern GM — and what next? And then there was a spectacular bankruptcy, the separation of several companies and the closure of a number of legendary brands. Only the intervention of the US government saved the famous domestic car manufacturer (which today is in the top ten in terms of sales volume).
VW has been approaching the coveted 10 million figure for a few years now, and it was already very, very close, but suddenly there was talk that the German concern was not doing as well as everyone thought.
Of course, mysticism has nothing to do with it. For example, Toyota successfully crosses this line for the second year in a row. It's just that as production scales increase, so do the costs of planning errors. Moreover, political, economic and other reasons work together. Among them is the speed with which European officials pushed the population toward a “bright ecological future”, began banning internal combustion engine cars and almost forcibly transferred everyone to “electric trains”. But the laws of economics cannot be cheated.
Representatives of the auto industry workers union are already making statements in the spirit of “we will not allow, we will not forgive” on statements about the closing of the VW plants. But what can their persistence lead to? In the worst case - to the bankruptcy of the Volkswagen Group and growing unemployment.
There is a clear example in world history: the collapse of the once largest industrial center of the USA, Detroit. Problems with Volkswagen - these are problems not only of its management, but also of the German federal government, as well as the province of Lower Saxony, which is one of the main shareholders of the concern (20% of the shares) and where most of the factories work (Wolfsburg, Hanover , Osnabrück, Emden). The authorities of this country will, of course, have to support the unions (employees of the companies are their voters) and prevent factory closings. This means that we will have to find some compromises.
All in all, Volkswagen has had a long and painful “negotiation period”, I would say, with an unpredictable outcome. Meanwhile, time is running out and the clock is already ticking for the leading German automaker.