Germany’s Embattled Carmakers Face Next Round of Cutbacks

hu5){k3nfo8dpt{j}8mhzwve_media_dl_1.png Bloomberg

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(Bloomberg) — Around March last year, Volkswagen AG had settled on a hard-won plan to cut 50,000 jobs to revive profits and shore up its troubled German operations.

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Just over a year and a series of setbacks later, workers at Europe’s biggest automaker face the prospect of that number potentially doubling to 100,000.

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The plan, first reported by Manager Magazin, needs approval from the supervisory board where labor representatives hold powerful sway. Still, it’s reflective of a growing urgency in boardrooms across Germany, which risks losing its industrial edge to nimbler rivals from abroad.

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The situation in the auto industry is especially dire, with BMW AG and Mercedes-Benz Group AG also weighing cost cuts as the sector grapples with US tariffs, waning sales in China and high energy and labor costs.

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The malaise is trickling down to parts makers Robert Bosch GmbH, Schaeffler AG and Aumovio SE, which are closing sites and eliminating staff. On Friday, Bosch announced that its CEO Stefan Hartung would leave the world’s biggest automotive supplier at the end of this month after getting started on some 18,500 job reductions.

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The moves coincide with a rough patch for the German economy. After a strong start to the year, the Bundesbank predicts that output will stagnate in the current quarter amid headwinds from the war in the Middle East. Chancellor Friedrich Merz’s government is also struggling to push through much-needed reforms as demographic change undermines the nation’s pension system.

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What Bloomberg Economics Says:

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“This would align with the ongoing decline in industrial employment and highlights the structural challenges confronting German car manufacturers. We expect only subdued economic activity in the sector in the coming quarters, with the energy price surge triggered by the Iran war providing an additional drag.” 

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—Martin Ademmer, economist. For more, click here

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Volkswagen’s renewed restructuring push includes a plan to shutter as many as four factories in Germany, something labor leaders were able to take off the table before. WirtschaftsWoche reported on Friday that Manager Magazin was overstating the company’s planned total job cuts, saying they’d come in at no more than 80,000.

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Either way, Chief Executive Officer Oliver Blume has been warning that the carmaker’s way of operating was essentially broken.

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“Developing a ‘world car’ in Germany, producing it in Europe and selling it worldwide: Our business model, which has been successful for decades, no longer works today,” Blume said at the company’s annual general meeting earlier this month.

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Days earlier, BMW, until then one of the few resilient automakers, drastically cut back its profit expectations. The maker of the iX3 singled out a downturn in China and consumers keeping their purses shut as they worry about the Middle East conflict fanning inflation.

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Meanwhile, fast-moving rivals from China are gaining traction in Europe with affordable electric and hybrid models, intensifying the competition.