While Volkswagen, flagship of the German economy, announces factory closures, layoffs and salary cuts, the European automobile industry finds itself in turmoil. Chinese competition, poorly controlled electric shift and production overcapacity make this crisis a major issue.
With the closure of three factories in Germany, workforce reductions and salary cuts of 10%, Volkswagen, the historic flagship of the German automobile industry, is embarking on a “very violent shift” which marks the break with a period of prosperity, explains on the microphone of Tout un monde Bernard Jullien, lecturer in economics at the University of Bordeaux and specialist in the automotive sector.
>> Read also: Volkswagen prepares massive job cuts in Germany, according to employee representatives
Critics are pouring in in Germany, denouncing the management of Volkswagen which failed to offer a sufficiently popular electric model and relied on its past successes in China, a market which has now become very competitive.
Chancellor Olaf Scholz, like the entire German press, essentially believes that employees should not pay for management’s mistakes. Indeed, Volkswagen’s lack of strategy is cruelly felt as the manufacturer struggles to compete with cutting-edge Chinese brands, such as BYD, which now dominate their own market and are attacking international markets.
A possible relocation
For Volkswagen, emblem of the German economic miracle and the country’s largest private employer with 322 billion euros in turnover in 2023, it is the end of an era. To reduce costs, the prospect of relocation, previously ruled out, now becomes possible. Like other European groups like Stellantis or Renault, which have opened factories in countries where costs are lower, notes Bernard Jullien.
German manufacturers have benefited from the growth of the Chinese market which has ensured their profitability. Except that now, China has many very efficient manufacturers
“This is probably part of what will be negotiated. We know that Volkswagen was a little stuck in this perspective due to its governance, which required validating this type of decision not only at management level, but also with IG Metall and the Länder It’s true that for German automobile manufacturing, this is a major trauma.”
The Chinese market is no longer “the El Dorado that it was for 20 years for Volkswagen and for all manufacturers”, underlines Flavien Neuvy, economist and director of the CETELEM observatory. At the start of the 2000s, only 500,000 new cars were sold annually in China, while today it is 26 million, he explains.
“So the German manufacturers have benefited from the growth of the Chinese market which has ensured their profitability. Except that now, China has many very efficient manufacturers. And there is a price war which has set in with Chinese manufacturers who no longer want to leave too much room for foreign manufacturers.”
The poorly negotiated electrical turning point
Added to this is a poorly negotiated electrical turning point for the German manufacturer. Busy with the Dieselgate scandal, Volkswagen is today not at the forefront in this vital sector for the automobile industry, as Bernard Jullien explains. This delay in electromobility complicates Volkswagen’s situation in Europe.
>> Read also: Nine years after Dieselgate, criminal trial of former Volkswagen boss opens
“It is not lost, but for the moment, the ID.3 type products which were to replace the Golf or ID.4 which were to replace the Passat are not having the same success as the equivalent thermal models,” notes the specialist in the automotive sector.
Competition is a good thing, but it must be fair, with equal rules for everyone
To avoid a distortion of competition with the arrival on the European market of much cheaper Chinese cars, the European Commission has just introduced customs taxes of up to 35% on models manufactured in China, which are added to the 10% already in effect. The boss of the VW brand Thomas Schaeffer, interviewed by Tout un Monde last June, is not in favor of it.
“The auto industry is global,” he explains, “customs duties make vehicles and businesses more expensive. Competition is a good thing, but it must be fair, with equal rules for everyone.” He recalls that the European market is attractive, and like the Japanese and Korean manufacturers before them, Chinese manufacturers will come to Europe. However, according to him, “policymakers must ensure that the rules are respected. Regulations in Europe are very different from those in China. A manufacturer who wants to succeed in the long term in Europe must produce and strengthen its supply chains supply here, so that everyone plays on a level playing field.”
The entire automotive sector concerned
German manufacturers are contesting these customs taxes because they import some of their vehicles built in China into Europe. Flavien Neuvy, for his part, believes that this is therefore a somewhat paradoxical measure.
The auto industry is not doing very well. There are too many factories
On the one hand, Europe is calling for accelerating the transition to electricity for climate reasons, he analyzes. However, electric vehicles remain too expensive for European consumers, which limits sales. According to him, Chinese manufacturers could meet this demand with more affordable models, but their arrival is hampered by customs duties intended to protect local manufacturers. “We want cheaper electric cars, but as soon as they come from elsewhere, we increase the price with taxes,” he notes.
And according to Flavien Neuvy, the entire European automotive sector is potentially affected, due to oversized production capacities compared to current demand. “The automobile industry is not doing very well. There are too many factories” for a declining market. According to him, a return to 2019 sales levels would be necessary to break this impasse, but forecasts for 2025 remain well below this pre-crisis reference.
>> Read also: Chinese electric cars will be taxed in the European Union
Radio subject: Patrick Chaboudez
Web text: Fabien Grenon
