Europe’s locomotive is in serious trouble. Volkswagen has announced, for the first time in 87 years, that it is ready to close factories in the country. Yet more bad news for Chancellor Scholz, who is increasingly shaky. After the defeat in the European elections in June, this past weekend’s news arrived. In the regional elections in Thuringia and Saxony, a far-right party, the AfD, triumphed for the first time since 1945. And now the historic German car brand has been cut, which means thousands of jobs are at risk. A domino effect, about a year before the national elections. The starting point of the German decline began in 2015, precisely with the scandal involving the historic national car brand, Volkswagen. And yesterday’s announcement should be seen from this point of view.
The German car manufacturer is in the red and must cut costs. Hence the announcement of the possible closure of a factory. Volkswagen’s plan called for a 10 billion euro cost cut by 2026 and to rationalize expenses to support the green transition. But that’s not enough, the cuts must be at least 14 billion euros. So? Closure of the German giant’s first production plant in sight. And the company’s commitment not to lay off employees until 2029 is up in the air.
The German model began to falter in 2015, just as the Volkswagen scandal broke out. The US Environmental Protection Agency discovered that the German giant had manipulated 11 million models sold since 2009 by ensuring that diesel engines did not pollute beyond permitted limits. A problem for Volkswagen and a problem for Germany. At that very moment, economic growth was starting to slow down. And then came Covid, the war in Ukraine, the lack of cheap Russian gas and trade tensions with Beijing. And in parallel, political consensus for the Chancellor and her coalition has recently fallen. The weekend elections in Thuringia and Saxony with the far right at 33% against the 24.5% of the conservative Christian Democratic Party (CDU) and the 6.5% of the SPD of Chancellor Olaf Scholz are confirmation of this.
From the point of view of the automotive market, Germany’s suffering is not an isolated case. The moment is delicate for all of Europe. Electric cars are struggling to take off, Chinese competition is fierce (despite the tariff policy) and consumption is not shining. The August data for the Italian market prove it. New registrations suffered a 13.4% contraction compared to the same month in 2023. The push effect of incentives is over: +15% in June and +4.7% in July. The balance is not rosy: in the first eight months of 2024 there was a drop of 18.5% compared to 2019.
