How the VW crisis is a failure of Germany's car policy

The German term "Zeitenwende," which literally translates to "a change of times," is being used rather frequently in German politics at the moment.

Coined by German Chancellor Olaf Scholz to address the new foreign and defense policy demands that arose after Russia's attack on Ukraine, it's also come to describe the massive changes in the German economy. That includes in the German auto industry and the transition toward electric mobility.

Europe's biggest automaker Volkswagen, and the problems it is currently having, are a prime example of these kinds of changes. 

In its latest auto industry analysis, consultancy PricewaterhouseCoopers (PwC) shows that market momentum is clearly shifting in favor of electric vehicles (EVs). PwC anticipates that the number of EVs on the road will increase over the coming years. The Frankfurt-based market analysts also identified which models are currently successful and which are not. From a German perspective, the results are sobering: Tesla's Model Y is by far the best-selling EV across major international markets — Europe, China, US — while VW models lag far behind.

Audi plant closure a harbinger

Frank Schwope, a car-industry expert at the University of Applied Sciences for Small and Medium Enterprises in Hanover, thinks VW's poor market penetration is one of the main reasons for its current difficulties. Schwope told DW that VW's weaker sales were also due to the "disruption caused by electromobility and new Chinese competitors."

Volkswagen has also blamed market disruption for the company's falling earnings, which saw net profits in the third quarter of 2024 decline by nearly 64% compared with the same quarter a year ago. According to reports in German business newspaper, Handelsblatt, VW now wants to save on salary costs in particular. A 10% cut in salaries would bring €800 million toward the company's savings goal of €4 billion euros. According to VW's works council, the automaker is planning to close three plants and cut tens of thousands of jobs.

Arne Meiswinkel, the member of the VW board responsible for human resources, presented the plan, which also includes a revised bonus system, after talks with labor leaders. "We're open to any discussion to reach our financial goals," Meiswinkel told reporters in Wolfsburg, where VW is headquartered.

VW subsidiary Audi is already moving decisively, planning to halt EV production at its Belgium plant in Brussels altogether by the end of February. About 3,000 Audi workers may lose their jobs, a representative of the labor union told news agency AFP on Tuesday.

Since 2019, German automakers have shed about 46,000 jobs. The president of the German Association of the Automotive Industry, Hildegard Müller, is warning that there could be worse to come and that the shift to EV's will cost the German automotive industry an additional 140,000 jobs over the next decade. "Transforming our industry is a monumental task," she told news agency Reuters this week, adding: "It is crucial that a political framework supports and accompanies this transformation."

Political interference problematic

Volkswagen was founded by Hitler's Nazi party in 1937 as a state-owned carmaker. Even after Nazi Germany's defeat in World War II, the company was only partly privatized. The German state of Lower Saxony, where VW is based, still holds a significant stake and occupies a seat on the supervisory board.

This is why Stephan Weil, the state premier of Lower Saxony, is demanding "alternative solutions" to the massive cuts in order to "develop consensus-based solutions." Politics, he told reporters earlier this week, must also do its part, calling for incentives for EV purchases and a relaxation of EU fleet emission standards, which set limits on the amount of CO2 emissions vehicles produced by EU automakers can create.

Weil is anxiously trying to balance his supervisory role at VW with the public interest in his state. But Sudha David-Wilp, director of the German Marshall Fund's Berlin office, argues that politics is a serious problem for German companies. David-Wilp told DW that Germany's current economic difficulties are a result of successive governments' reluctance to tackle painful but necessary reforms.

"The years under Chancellor Angela Merkel were fairly comfortable for Germany, and the country was wealthy enough to navigate the COVID-19 pandemic. However, given the rise of populists, established parties want Germans to feel economically secure so they won't be swayed by fear-mongering parties," David-Wilp explained.

The situation at VW is currently also compounded by the inconsistent stance of the national government in Berlin on how to support the roll-out of electric vehicles. State Premier Weil has been calling for the reintroduction of state subsidies for EV purchases, but Chancellor Scholz's governing coalition is still refusing to heed that call. It abandoned the subsidy amid budget constraints at the end of 2023. 

Schwope confirms this is a problem for VW, stating that the company's issues are due to both "missteps by VW management" as well as the "zigzagging policies" of the federal government.

A symbol of Germany's industrial decline?

Hans-Werner Sinn, a German economist and former president of the Ifo Institute for Economic Research, says VW's fall is part of a much bigger problem besetting German industry. "Deindustrialization is not a future issue — it is a here-and-now issue," he told an economic conference in September. "Volkswagen is merely an early victim." VW is a victim of electromobility, the EU's ban on combustion engines, and high energy costs in Germany, he added.

"The outlook for VW is certainly symptomatic of a broader crisis in German industry," Franziska Palmas, an expert on the German economy at Capital Economics in London, told DW. In July industrial production was almost 10% below the level it had been at, at the beginning of 2023. It is now in a six-year downward trend.

"Volkswagen stood for the success of the German economy over the past 90 years," Commerzbank chief economist Carsten Brzeski told DW. But not any longer. Now VW is becoming a symbol of many of the concerns worrying those working in the German economy.

"VW's problems should be the final wake-up call for Germany's politicians," Brzeski argued, "to make the country more attractive again through investments and reforms."

This article was originally written in German.