After news that Europe’s largest carmaker may close two plants in Germany, experts warn that the alarm is not limited to Volkswagen or the automotive industry
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Germany is grappling with the automotive sector crisisstarting with Volkswagen (Vw), due to the transition from combustion engines to electric vehicles by 2035, but experts They predict that other manufacturing sectors could soon follow.
The president of the Deutsche Institut für Wirtschaftsforschung (German Institute for Economic Research, or DIW), Marcel Fratzscherbelieves that “companies have not grasped the transformation” of the economy and industry and that many, like VW, have “fallen behind”.
“It’s not just the automotive sector, but also the machinery sector, the pharmaceutical sector, the chemical sector, it’s a problem that many people have,” Fratzscher told Euronews.
The Inability of the German Economy to Renew Itself
The world’s largest chemical producer, Basf, which has its headquarters in Germany, is considering laying off workers in Germany (and move part of the production to Asia) in the face of rising energy prices caused by the war in Ukraine and German bureaucracy.
“German companies have already moved a lot of production to China, India and elsewhere, and that will continue,” Fratzscher explains. However, with China starting to subsidize its own companies, “it becomes more difficult for German companies to compete”also due to the difference in labor costs between Europe and Asia.
What will happen now to the recession-ridden German economy?
The Diw provides for a “German economy stagnates this year and gradually recovers in the coming years”. Growth contracted again in the second quarter of 2024, with Germany technically in recession, with industrial production continuing to decline.
The automotive industry has been particularly hard hit by the low demand for electric vehicles, due to the slow pace of investment in infrastructure. However, Fratzscher is optimistic and believes that large German companies “have always been very innovative,” having reinvented themselves several times.
“They need to readjust, to reform. And this is the case of Volkswagen and many German companies,” he added, and without the need for government intervention as called for by many.
For Fratzscher a “natural selection” of companies is functional to the development of the economy. “Change often means consolidation. But companies also need to transform themselves to be able to invest and develop new technologies,” the expert said.
This is a generational change of companies, which is not limited to Germany. Fratzscher believes that there will be Investments needed for the next five yearsto manage this transition also at European level.
Since the German economy is largely dependent on the automotive industry, there remains the fear that the sacrifices and layoffs that will accompany the new investments will have a negative impact on society and politics.
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