As global economies worsen, industry giants like Volkswagen are not spared, feeling the squeeze while they go through a faceoff with their Asian rivals.
In an interesting snippet of news that has shocked the world, the German automaker Volkswagen considers closing factories in Germany (its home country). Volkswagen is also considering a restructuring of its operations, in an attempt to cut costs and improve profits.
"The European automotive industry is in a very demanding and serious situation," Oliver Blume, the CEO of Volkswagen Group, said in a statement Monday, the 2nd of September, 2024.
Oliver Blume also mentioned the introduction of new competitors in European markets, which has negatively affected Germany's stance as a manufacturing powerhouse.
A Volkwagen plant closure in Germany would be the first time the automaker, which was formed in 1937, had closed a domestic factory. It would also be the first time the company had closed any of its manufacturing plants since its U.S. facility in Westmoreland, Pennsylvania, closed in 1988.
Thomas Schaefer, the CEO of the Volkswagen Passenger Cars division, said efforts to reduce costs were "yielding results" but that the "headwinds have become significantly stronger.”
Volkswagen is considered a significant part of Germany’s post-war economic miracle, but that seems to be reaching a screeching halt. Why?
Asian Competition and the EV Race
One of the biggest reasons for Volkswagen's economic struggles is linked to the growing presence of Asian automakers, particularly from China and South Korea.
Although Volkswagen hasn't formally declared bankruptcy like these companies, they, alongside other European automakers, are facing increased competition from relatively cheap Chinese electric cars. Volkswagen's half-year results indicate it will not achieve its target for 10 billion euros ($11 billion) in cost savings by 2026.
These company brands which include the likes of BYD, NIO, and Hyundai, have made inroads into the European market and capitalized on the rising demand for Electric Vehicles.
The discussion around closures and layoffs is for the company's core Volkswagen brand. The brand saw operating earnings sag to 966 million euros ($1.1 billion) from 1.64 billion euros in the year-earlier period.
Also, Volkswagen, which has roughly 120,000 workers in Germany, has sought to cut costs through early retirements and buyouts that avoid forced layoffs.
In response to this, the employees of Volkswagen are unhappy. Top employee representative Daniela Cavallo said that "management has failed... The consequence is an attack on our employees, our locations and our labor agreements. There will be no plant closings with us.”
How Has The World Responded to the Asian Automakers Expansion?
In July, 2024, the European Union decided to impose provisional tariffs on Chinese Electric Vehicles, although the European Union will only collect the levies if discussions with Beijing are unsuccessful.
The levies would consist of 17.4% on cars from BYD, 19.9% from Geely and 37.6% for vehicles exported by China's state-owned SAIC.
Also, American president, Donald Trump, has quadrupled the tariff from 25% to 100% on Chinese Electric Vehicles.
Final Words
As Volkswagen, a symbol of Germany's industrial prowess, contemplates unprecedented factory closures in its home country, it exposes the intense competition and economic pressures reshaping the country and by extension, the rest of Europe.
The decisions made by Volkswagen and other European manufacturers in the coming years will not only define their future but will also have significant implications for the global economy, employment, and technological innovation of automobiles.