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Automotive Industry
Volkswagen Group’s plans for sweeping restructuring demonstrate how Germany’s automakers and suppliers are shrinking operations to remain profitable as global growth slows, markets fragment regionally and Chinese competition intensifies.
After a July 9 boardroom stalemate over CEO Oliver Blume’s plans to close four factories and cut 50,000 jobs in addition to 50,000 already agreed upon with unions, VW Group’s supervisory board unveiled a new strategy that is long on promises and short on detail.
Blume failed to win board backing for plant closures or further job cuts in the face of union opposition. Instead, the board announced a “Future Plan” that aims to cut the group’s model lineup by up to 50 percent, reduce product complexity by up to 75 percent and cut annual production capacity to about 9 million vehicles from 10 million today while streamlining management and eliminating overlapping technologies.
VW’s struggles point to a broader reality confronting Germany’s automotive industry. For decades, the country’s automakers rode the wave of globalization. Manufacturers and suppliers expanded around the world, supporting hundreds of thousands of high-paying jobs at home.
That era is ending.
In a May report, consultancy EY estimated that the German auto industry has shed 125,800 jobs since 2019, reducing the sector’s workforce by 15 percent to about 725,000 employees. More than one-quarter of those losses — about 32,000 jobs — occurred during the past year, suggesting the pace of downsizing is accelerating.
Germany’s automotive workforce has long remained remarkably stable at more than 800,000 employees even as companies weathered recessions, financial crises and the pandemic. The recent decline marks a sharp break with that pattern and suggests a deeper structural change rather than another cyclical downturn.
Industry prepares for permanently slower growth
Analysts see the changes as a structural resizing of an industry built for a larger and more profitable global market than the one that exists today. Rather than preparing for the next upturn, companies are reducing head count, consolidating operations and shrinking their industrial footprint in anticipation of slower long-term growth.
“The European market isn’t really growing,” said Mark Wakefield, who leads AlixPartners’ global automotive consulting practice, during a recent presentation.
At the same time, he said, Chinese manufacturers have room to continue cutting prices while remaining profitable, increasing pressure on European automakers to reduce costs and consolidate operations.
Blume’s attempt to implement a far-reaching overhaul is the clearest expression yet of that shift, but analysts doubt whether VW and other legacy automakers are doing enough to meet the challenges.
Stephen Reitman, an analyst at Bernstein, said VW’s plan fell well short of expectations because it laid out ambitious targets but offered little detail on how they would be achieved. He sees the board stalemate as a sign that negotiations with workers will ultimately lead to compromises and fewer concessions than needed.
He said investors were left asking “Where’s the beef?” and were likely to respond with a dismissive “So what?” unless management provides a credible execution plan.
Political, union opposition hold back wider restructuring
VW may not be able to get everything it wants. Industry restructuring, especially plant closures and massive job cuts, quickly becomes political, especially at a time when voter dissatisfaction is fueling the rise of Alternative for Germany, a right-wing populist party that is leading opinion polls.
Combined political and union opposition may still thwart VW’s plans, and more broadly a wider restructuring of the German auto industry. The prospect of a smaller VW is provoking fierce resistance from Germany’s powerful labor unions, underscoring the political obstacles facing any large-scale restructuring.
IG Metall union members staged coordinated protests outside VW plants across Germany as the board discussed restructuring plans — beating drums, blowing whistles and carrying banners reading “Fight for Our Future.”
Daniela Cavallo, chair of VW’s powerful works council, vowed to fight any plant closures and insisted any job reductions must be voluntary and socially acceptable. “Enough is enough!” she said after the fractious board meeting, accusing management of treating employees with “massive disrespect.”
Cavallo warned that workers across VW’s German operations may hold simultaneous worker assemblies after the summer break to oppose plant closures.
Continental, ZF, Bosch face similar pressures
VW is only the most prominent example of a broader industrial retrenchment.
German supplier Continental has spent the past two years dismantling much of the diversified industrial group it spent decades assembling. The company is spinning off its automotive division, selling its ContiTech industrial business and refocusing on its more profitable tire operations while eliminating thousands of jobs.
Together, the moves will leave Continental substantially smaller than the technology conglomerate it sought to become during the 2000s.
ZF Friedrichshafen, founded in 1915 to build gear systems for Zeppelin airships, is undergoing one of the largest restructurings in its history. Burdened by debt accumulated through acquisitions and facing weaker-than-expected electric vehicle demand, the supplier is cutting thousands of jobs, selling assets and simplifying its business as it attempts to restore profitability.
The changes have reached the industry’s leadership ranks. Robert Bosch CEO Stefan Hartung unexpectedly stepped down after overseeing a restructuring that included plans to eliminate 13,000 jobs as the world’s largest automotive supplier seeks to improve competitiveness in a rapidly changing market. He was replaced by deputy CEO Christian Fischer on July 1.
Within Stellantis, the role of its German brand Opel inside the automaker’s engineering organization has steadily diminished as engineering work is shifted elsewhere inside the group.
U.S. tariffs, China slump, EV transition weigh heavily
As each company tackles its own challenges, together these changes illustrate how Germany’s auto industry overall is becoming smaller, employing fewer people, producing fewer cars and reining in its global ambitions to focus on staying profitable.
The reasons extend well beyond the transition from combustion engines to electric vehicles.
Manufacturers face pressure from several directions simultaneously. European demand remains below pre-pandemic levels. U.S. tariffs have increased the cost of serving one of the industry’s most profitable export markets.
Automakers must continue investing billions in electrification, software and artificial intelligence while still supporting combustion engine programs. At the same time, China has evolved from the industry’s largest source of profits into a formidable competitor.
Mercedes-Benz illustrates the point. In Europe, the company’s second-quarter vehicle sales were up 5 percent from a year ago, and 15 percent in the U.S. In China, once the industry’s largest profit center, sales plunged 28 percent. BMW said on July 10 that second-quarter sales in China fell 30 percent but grew in the Americas, Germany and Europe.
Europe, meanwhile, is becoming almost as fiercely competitive as China. Chinese manufacturers are no longer competing only on price. They are taking market share from European brands by offering tech-laden cars at prices high-cost Western rivals cannot profitably match.
Industry consultant AlixPartners estimates that Chinese brands accounted for about 10 percent of European vehicle sales last year and could exceed 16 percent by the end of the decade. A survey conducted by the consultancy found younger German consumers expressing a preference for Chinese brands over domestic marques.
125,000 automotive jobs could disappear
Slower demand and weaker exports are leaving Europe’s factories underutilized, which is a drag on profits and adds pressure on companies to reduce local workforces.
In a June report, Boston Consulting Group estimated Europe has more than 20 percent excess vehicle production capacity — about 5.4 million vehicles annually, equivalent to the output of more than 35 assembly plants. The group says average factory utilization has fallen to about 60 percent, well below the 80 percent generally considered necessary for efficient operations, reflecting what it describes as a structural rather than cyclical decline in demand.
German auto association VDA warns that an additional 125,000 automotive jobs could disappear by 2035 unless the country restores industrial competitiveness.
If those forecasts prove accurate, the German auto industry will have lost a quarter of a million jobs between 2019 and 2035.
‘Smaller and less German’
Industry analyst Philipp Raasch said the restructuring extends beyond temporary cost cutting and reflects a fundamental shift in where automotive companies will design, develop and build their next generation of vehicles.
As software, AI and batteries account for a growing share of a vehicle’s value, he expects German manufacturers to continue shifting development and production closer to key markets and technology partners abroad.
“German automakers will be smaller and less German,” said Raasch, a former Mercedes-Benz manager who publishes the Autopreneur industry newsletter. Production and engineering, he said, are likely to continue moving out of Germany and increasingly out of Europe.