Profit declines, clashes with unions over feared factory closures and layoffs, and the EU’s new tariffs on Chinese electric cars take effect, intensifying concerns about a potential trade clash from the German viewpoint. The string of looming concerns about Volkswagen (VW) gained a new dimension this Wednesday. It was the day scheduled for the group to report results, to begin the second round of talks with the works council, and to implement the additional tariffs on China, reaching up to 35.3 percent, approved by the EU with Germany voting against.
A first look at the numbers arrived early. Profits for the first nine months fell 33.1 percent year over year. The trend is not only alarming but increasingly rapid: the third quarter was even worse, with a year-on-year drop of 64 percent. VW is selling fewer cars, and forecasts do not point to a revival. A portion of the problem stems from weakness in the Chinese market. The German vote against the EU tariffs, which France argues are essential, reflects the investments of its major manufacturers in China. Undermining the giant in Asia ends up being a misstep for Germany, whose government has insisted that the EU should keep negotiating with Beijing.
The Loss of Competitiveness
For VW the situation is dire. The company has little to offer in terms of electric vehicles and its former star segment, internal combustion cars, is faltering. The Chinese giant dominates electromobility, and high production costs in Germany weigh on the group.
All of this feeds the alarm signals to the works council, which last Monday reported VW’s plans to close up to three of VW’s ten factories in Germany. Tens of thousands of layoffs are anticipated, warned Daniela Cavallo, the head of the Works Council. Those who keep their jobs among the 120,000 current employees would face wage cuts of 10 percent. None of this was confirmed by management, though they did issue a statement recalling the warning from September that the situation is grave and that restructuring in Germany is inevitable.
The German metalworkers’ union, IG Metall, began this Tuesday a campaign of intermittent strikes across the sector to back its demand for a 7 percent pay rise, the same demand the VW works council is pushing for its workers in Germany. The sector’s employers’ association rejects this request, while tensions rise ahead of the confrontation anticipated at VW, the largest carmaker in Europe.
Ahead of the start of the new negotiating round with the works council, this Wednesday at 11:00 in Wolfsburg, a tense calm prevailed. Both sides, unions and company, are laying their cards on the table. The quarterly results presentation fit into the scene as a backdrop for the talks.
Policy Alerts
From the political establishment there are calls to avoid layoffs in a group that has been a model not only for its strength in Germany’s premier automotive sector but also for finding smart solutions during past crises to prevent job losses. The prime minister of Lower Saxony, Stephan Weil, urged that intelligent solutions be sought to address VW’s crisis. His state holds roughly 12 percent of VW and hosts its headquarters with about 70,000 workers, including Osnabrück, one of the plants facing potential closure.
The climate of catastrophe, amid weakness and dissent looping around the Olaf Scholz government, has taken hold of the sector identified with Germany’s export leadership. The Automotive Industry Association (VDA) warned in recent days that the sector could lose 140,000 jobs over the next decade if the transition to electromobility isn’t achieved. That would add to the 45,000 jobs already lost in the past five years, in large part due to pandemic-related shutdowns. In 2023, the sector employed around 910,000 people.
GDP Takes a Breather
In this context, there was a bit of relief when Destatis reported that the German economy did not lose momentum in the third quarter, but grew 0.2 percent compared with the previous quarter. A few weeks earlier the government had presented revised forecasts for 2024, suggesting Germany would finish the year in recession for the second consecutive year. The data underscores the fragility of an economy that has long relied on export strength, even as it tries to navigate the shift to electrification and the pressures from abroad.