Volkswagen, Europe’s largest car manufacturer, is currently grappling with significant challenges that could redefine its future and impact the broader landscape of German economic growth and European capitalism. As the company faces fierce competition from low-cost Chinese automakers and navigates a complex yet expensive transition to electric vehicles (EVs), the internal governance of Volkswagen has come under scrutiny. The outcome of this governance struggle could have lasting implications not only for the company but also for the German automotive industry and nation’s economic identity.
In recent years, Volkswagen has experienced a dramatic decline in its production figures. The number of cars produced under the Volkswagen brand has dropped by 22 percent over the past five years, with current output standing at 4.9 million vehicles. Compounding this decline, Volkswagen’s market share in China, once a lucrative market, has also plummeted from 20 percent to 14.5 percent. This shift is alarming, especially considering that a decade ago, Volkswagen was enjoying substantial profits from its joint ventures in China, reporting earnings of €5.2 billion annually. By 2023, these profits had halved to €2.6 billion and are projected to decrease by another 33 percent this year, reflecting the company's growing vulnerabilities.
The most obvious consequence of these troubling times is that Volkswagen is planning to close at least three factories in Germany and reduce its workforce. Daniela Cavallo, head of VW’s influential works council, has characterised the confrontation with management as “existential” for the company’s 296,000 workers based in Germany. She has vowed to resist any attempts at factory closures and pay reductions, underscoring the deep-seated tensions between labour and management at a company that has never before shut down a factory in its German base during its 87-year history.
This labour dispute comes at a time when the demand for EVs has also taken a down turn in Germany. Following the abrupt termination of a government subsidy program that previously offered up to €4,500 for each EV purchase, sales have plummeted by 29 percent in the first nine months of 2024. The reduction in demand for electric vehicles has been particularly challenging for Volkswagen, which has been attempting to pivot its operations towards more sustainable vehicle production. Meanwhile, China has emerged as a leader in EV manufacturing, further complicating Volkswagen's competitive position in the market.
So, what do Volkswagen’s current troubles indicate about the broader German and European economy? Martin Wansleben, head of the German Chamber of Trade and Industry (DIHK), has warned that the signs of deindustrialization in Germany are becoming increasingly evident. This shift could signify a broader transformation in Germany's economic landscape, as traditional manufacturing sectors face unprecedented pressures from global competition and technological advancements. It is further evidence of Europe’s inability to match the industrial capabilities of China in key areas such as the automobile trade.
Works cited :
https://www.economist.com/business/2024/10/31/volkswagens-woes-illustrate-germanys-creeping-deindustrialisation#
https://www.ft.com/content/b95f9a64-c582-4367-9645-6a7106357849
https://www.ft.com/content/f066de48-f2b8-4d9c-ac52-faf577027a1e
https://www.ft.com/content/a2c7ca01-461c-4dc2-8006-ec1d6b61a066
