BERLIN

Volkswagen’s decision to consider closing some of its factories in Germany as part of a €10 billion ($11 billion) cost-cutting plan has sent shockwaves through the country's automotive industry. The move, coupled with the early termination of a 30-year employment protection agreement, is seen as a historic shift for the company and a broader signal of trouble in Germany's industrial sector.

The fact that groundbreaking technologies in the automobile industry have come from China and the US in recent years has been a matter of debate in Europe.

German automakers face competition from electric car maker Tesla as well as inflationary pressures, high energy costs, slow economic growth in Europe and competition from Chinese automakers.

The transition to electric vehicles (EVs) remains challenging for Germany’s automotive sector following the implementation of various regulations and supply chain disruption. The sector is struggling with surging costs while realizing major investments in battery technology.

As part of cost-cutting and savings measures worth around €10 billion ($11 billion), Volkswagen said last week that it was considering closing some of its factories in Germany, where it employs about 300,000 people, for the first time in its 87-year history.

While German automotive suppliers such as Bosch and Continental, which are among the world's largest, and other European automakers have resorted to laying off tens of thousands of workers due to declining margins and demand, Volkswagen, which signed a job security agreement in 1994, has not been able to reduce its workforce.

After taking the helm two years ago, Volkswagen Group CEO Oliver Blume planned to reduce personnel expenses by a fifth by 2026.

But after failing to meet its target of saving €3 billion in two years, Blume last week pushed for more. He announced plans to consider closing factories in Germany, cancelling the company’s 30-year job security guarantee.

This has fueled discussions about the automotive sector in the country and deeply affected the automotive market.

Volkswagen’s management said last week that restructuring based solely on demographic trends is not enough to make the necessary structural adjustments in the short term to increase the company's competitiveness and announced that the closure of vehicle and parts production facilities is inevitable in the current situation.

Following the announcement of the plan, management began talks with employees and their representatives. However, labor unions and the work council said that closing factories was unacceptable.

The meeting between Volkswagen’s management and workers last week began with banners protesting the company's latest austerity plans.

In the face of the crisis at Volkswagen, top politicians have demanded more help from Brussels. German politicians have accused the European Union of putting numerous obstacles in the way of carmakers.

German Economy Minister and Deputy Chancellor Robert Habeck stressed that Volkswagen bears a huge responsibility not only for Germany’s renowned automotive industry but also for its future as an industrial powerhouse and must remain so.

According to the Munich-based Ifo Institute for Economic Research, 70% of cars manufactured in Germany are exported to the UK, France, Italy, Spain and the US. China has also become an important export destination for German manufacturers in recent years due to its market size.

The crisis at Volkswagen has also prompted the German government, which ended its subsidies for electric vehicles late last year, to announce potential new tax breaks for battery-powered cars.

According to a draft law prepared by the German government after it ended green incentives for electric vehicles last year, companies will be able to cut up to 40% of the value of newly purchased electric and qualified zero-emission vehicles from their tax bills.

The extensive savings plans announced by Volkswagen Group have also worried the European Commission.

Speaking to Anadolu, automotive expert Ferdinand Dudenhoffer said: "If you look at (Czech automotive manufacturer) Skoda, they are successful. So it's not the topic of the products and technology. It's more or less the result of the structure of the laws in Germany."

Saying that Germany and Volkswagen are not left behind in the transition to electric vehicles, Dudenhoffer underlined that Germany's shift to electric cars slowed as it stopped subsidizing EVs.

"In a market which is going down, it is difficult for Volkswagen. Because it is the whole market. So the most important thing is that the German political system, Berlin made wrong decisions, which hurt the automotive industry," he said.

Dudenhoffer stressed that German automotive manufacturers have "very strong plans" to manufacture electric vehicles, adding, however that "these plans are not possible to implement due to political reasons."

Pointing to the "strong" EV sector in China, he said Chinese carmakers have a huge cost advantage due to big sales volumes compared to Europe.

Sharing his expectations for the coming five years, he said the European automotive market will become weaker while China will get stronger.

"What we see is that car makers go step by step more into the Chinese market, transfer their budgets and their investments more to China and a little bit to the US," he noted.

"Europe will be a region which will become weaker and weaker, not just in the automotive industry, but also in industrialization as a whole."

Dudenhoffer suggested European automotive producers to cooperate more with China in order to become more competitive and stay stronger.

"Crazy things" like additional tariffs on Chinese cars need to be stopped, he underlined.

"It would be very important to build up a strong European market for electric vehicles. That would be very important, because if you do that, then our companies can also go into electric vehicles technology and come up with cost advantages due to higher volume. So the idea is not to go to combustion engines. The idea is to make the electric vehicle market strong. If you do that, you can compete with China. If not, you will be losing," he said.