Major cuts at Volkswagen: what went wrong?
The VW works council has announced that the carmaker plans to shut at least three factories in Germany and lay off thousands of workers. The carmaker has not yet confirmed these plans, but it has spoken of a 'serious situation' and reported a massive 64-percent drop in profits in the third quarter of 2024 on Wednesday. The press analyses the causes of the crisis in Germany's key industrial sector.
Warning signs consistently ignored
Modest reforms have been postponed for too long, writes the Kleine Zeitung:
“Due to its ownership structure, with the state of Lower Saxony as its second biggest shareholder, VW has always been a hub of political ramifications. ... The fact that such massive cuts are now imminent can also be attributed to the persistent negation of warning signs (cost trends, low margins, investment pressure). Those board members who pressed for the necessary structural changes all too fervently quickly found themselves going out the revolving door. Those who for years classified even measured interventions as unnecessary will wake up to the drastic measures that are now likely to follow. Simply continuing as before is no longer an option.”
High time to cut costs
The crisis at VW is a foretaste of what lies ahead for Germany as a car-producing country, fears the Frankfurter Allgemeine Zeitung:
“Not just VW, but also BMW and Mercedes are feeling the effects of the reduction in profit margins from China because local rivals in e-mobility have gained the upper hand. In Europe, high energy and labour costs are taking a toll, not to mention the chaos surrounding the phase-out of combustion engines. It would be oversimplifying things to accuse these companies of sleeping through the transformation, but the fact that the industry is now calling in unison for state support sounds like mockery. Incentives to buy electric cars can improve the weak demand in the short term but more important is that VW and other carmakers finally cut their costs so they can catch up with the global competition.”
Paying the price of a mismanaged climate policy
The crisis in the German car industry is the result of false expectations, says The Spectator:
“Building cars requires a lot of energy, and it is impossible for Germany to stay competitive when power costs more than in the US, the Gulf or Asia. ... The blunt truth is this: Europe has completely mismanaged the transition, ignoring its industrial base, and complacently assuming that 'well-paid green jobs' would miraculously appear to replace any that were lost in traditional manufacturing. One of the biggest employers in its biggest economy is now paying the price. Unfortunately, VW won't be the last.”
Wrong to bet on expensive SUVs
Germany's car manufacturers put their money on the wrong horse, the Romanian Deutsche Welle service concludes:
“Germany's recipe for success in the automotive sector is expensive premium models that have generated high profit margins. More than three-quarters of these cars were exported, with almost one in five going to China. ... Analysts criticise the excessive dependence on China and warn that the premium segment, which includes off-road vehicles, SUVs and sports cars that cost over 100,000 euros even in the basic version, is set to shrink by at least nine percent. German car manufacturers have now recognised how strong the Chinese competition has become in recent years - both in the e-car and in the premium segment.”
Losing the race against China
The competitiveness of Chinese carmakers is the biggest problem for European companies, the Financial Times explains:
“Last year, China replaced Japan as the world's largest exporter of new cars. ... Chinese manufacturers such as BYD, Nio, MG-owner SAIC, Great Wall and Chery are building more advanced electric cars with costs 30 per cent lower than those of European carmakers. ... In Chinese showrooms, EVs are nearing price parity with petrol cars. ... The rise of homegrown brands has sharply reduced the sales of European, US and Japanese carmakers in China, which in recent years has been the biggest and most lucrative market for brands such as Volkswagen, Mercedes-Benz and BMW.”