Once a Symbol of Success, Today VW Represents Germany's Economic Crisis

Volkswagen faces a critical crisis as profits plummet and job cuts loom. With the shift to electric vehicles and increased competition, the German automotive giant is now emblematic of broader economic challenges in Germany.

Volkswagen, once a beacon of success and a symbol of German engineering excellence, now finds itself at the center of an economic crisis that reflects broader challenges facing the nation. As the company grapples with declining profits, impending layoffs, and fierce competition in the evolving automotive landscape, its struggles serve as a warning sign for the German economy. With calls for political intervention growing louder, Volkswagen’s situation highlights the urgent need for reforms to support the transition towards electric mobility and sustain the industry’s future.

VW in Crisis: Declining Profits and Job Cuts Loom

Volkswagen (VW) is currently in crisis, awaiting the outcome of ongoing negotiations amid a significant downturn in profits. The company reported a staggering 64% decrease in earnings for the third quarter of 2024 compared to the previous year. This financial distress is exacerbated by the auto industry's rapid transition away from combustion engines, with key markets in the USA, China, and Europe pivoting towards electric vehicles (EVs).

The shift towards electromobility is reshaping the automotive landscape, as highlighted by a recent study from PricewaterhouseCoopers (PwC). The report predicts a significant increase in battery electric vehicle (BEV) registrations in the coming years. However, Volkswagen's models lag behind competitors, notably Tesla’s Model Y, which has emerged as the best-selling car in major markets. This gap raises concerns about VW's ability to adapt and thrive in an increasingly competitive environment.

Job Security at Stake: The Impact of Electrification

Experts like Frank Schwope from the University of Medium Enterprises in Hannover attribute Volkswagen's difficulties to several factors, including intensified competition from Chinese manufacturers. In response to plummeting profits, VW is looking to cut labor costs significantly, with plans to reduce wages by 10%—a move expected to save around 800 million euros out of a targeted four billion euros in overall savings. Additionally, the company is considering the closure of three factories, which could result in the loss of tens of thousands of jobs.

The situation is particularly dire for Audi, a subsidiary of Volkswagen, where plans are underway to cease electric vehicle production at its Brussels plant by the end of February, impacting approximately 3,000 workers. Hildegard Müller, president of the German Automobile Industry Association (VDA), confirmed that the transition to electric mobility could lead to a loss of up to 140,000 jobs in the sector over the next decade, further emphasizing the urgency of political action.

Political Involvement: The Need for Support and Incentives

The complexities surrounding Volkswagen's crisis are intensified by the company's historical ties to politics. Founded in 1938 as a state-owned enterprise, VW has always maintained connections with the government, with the prime minister of Lower Saxony—where VW is headquartered—serving on the supervisory board. Prime Minister Stephan Weil is now advocating for government assistance, calling for incentives to promote electric vehicle sales and other supportive measures from the EU.

However, critics argue that the federal government has yet to implement any substantial reforms to enhance the economic framework. Sudha David-Wilp, director of the American German Marshall Fund in Berlin, stresses the need for bold reforms, noting that the previous administration under Angela Merkel provided a false sense of security. As the political landscape becomes increasingly fragmented, traditional parties express concern over the rise of populist movements, complicating the search for cohesive policy responses.

A Broader Economic Crisis: VW as a Reflection of Industry Challenges

The troubles faced by Volkswagen are symptomatic of a much larger economic crisis impacting Germany. As Hans-Werner Sinn, a former president of the Ifo Institute, notes, VW is emblematic of the broader challenges posed by the EU’s restrictions on combustion engines and the high energy costs plaguing the country. Additionally, recent data indicates a 10% drop in industrial production compared to earlier in 2023, underscoring the severity of the situation.

Carsten Brzeski from ING adds that Volkswagen's evolution from a symbol of economic prowess to a representation of crisis should serve as a wake-up call for German policymakers. The urgent need to enhance the country’s attractiveness for investment is paramount if Germany is to navigate these turbulent economic waters and restore its position as a leader in the automotive industry. As Volkswagen faces these challenges, its journey will be pivotal in shaping the future of Germany’s economy.