News broke Monday that Volkswagen is considering plant closures in Germany. The auto giant faces falling profits due to slowing sales in China and other major markets. This development comes as Europe's largest economy teeters on the verge of recession after reporting a slight contraction in second-quarter growth. Earlier this summer, VW's Audi revealed a billion-dollar investment in Mexico, as the company's future manufacturing could be overseas in the Americas.
Several financial outlets are reporting VW's potential factory closure plan, including Bloomberg, which said, "VW is considering unprecedented factory closures in Germany in a bid for deeper cutbacks, delivering another blow to Chancellor Olaf Scholz's government."
"The economic environment has become even tougher and new players are pushing into Europe," VW CEO Oliver Blume wrote in a statement, adding, "Germany as a business location is falling further behind in terms of competitiveness."
Bloomberg noted, "Any shutdowns would mark the first closures in Germany during the company's 87-year history, setting VW up for a clash with powerful unions."
Financial Times quoted Daniela Cavallo, chair of the council that represents VW's workers, who wrote in a note to workers that VW brand chief executive Thomas Schäfer "admitted" on Monday that cost savings programs had failed by several billions of euros, pushing VW into the red.
"As a result, the executive board is now questioning German plants, the VW in-house collective wage agreements and the job security programme running until the end of 2029," said Cavallo.
Cavalla called the plans "an attack on our employment, workplaces, and collective bargaining agreements."
VW deliveries in China were down 20% amid a broader decline in petrol-powered vehicles in the second quarter. A spokesperson told Reuters in June, "We do not expect an easy year."
Meanwhile, VW's Audi plant in Brussels has come under scrutiny this summer after the carmaker announced a one billion euro ($1.08 billion) investment in electric vehicle projects in the Mexican state of Puebla. There are mounting risks Audi could start moving EV production to Mexico.
Besides sputtering VW sales and the largest economy in the EU at risk of recession, the country's political environment has also become more chaotic.
Populist Alternative for Germany, or AfD, has become the first far-right party to win a state election in Germany since 1945.
Rising populism is driven by a national government run by weak liberals that have overseen an economy with high inflation, disastrous immigration, and growing skepticism for military aid for Ukraine. These are all new pressures Chancellor Olaf Scholz's center-left government.
In markets, VW shares trading in Germany recently slipped below Covid lows, touching levels not seen since 2011.
Maybe the West sabotaging Russia's Nord Stream pipeline that hooked Germany on cheap NatGas wasn't such a great idea as Europe's top economic powerhouse becomes less competitive. This only suggests increasing deindustrial risks, loss of jobs, and more socio-economic discontent across the bloc.
By Zerohedge.com
The leading economics blog online covering financial issues, geopolitics and trading. More