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VW and Germany sunk their dazzling success, concludes the American newspaper

The American newspaper The New York Times (NYT) came to such a conclusion in Melissa Eddy’s extensive report on the causes of the decline not only of the German automobile industry.

May it last forever!

“The German economy did really well after 2010, and so did Volkswagen,” pointed out Jens Südekum, an economist from the Heinrich Heine University in Düsseldorf.

In those years, Volkswagen exported cars with internal combustion engines to all of Europe and to China, and in 2016 rose to the position of the largest car manufacturer in the world by sales volume. He held onto it until 2019, despite the scandal surrounding illegal emissions test cheating in Europe and the United States, which cost the company more than 31 billion euros (783 billion crowns).

The German government achieved budget surpluses between 2014 and 2019. Interest rates were negative and Germany could borrow to invest in public infrastructure, digitization and the transition to a green economy. “Instead, it passed a law enshrining a balanced budget in the constitution, which continues to limit investment,” the NYT noted.

“Germany did too well, people became comfortable. They thought success would last forever,” Südekum said. “And now we know that’s simply not the case.”

The same could be said about Volkswagen, which has sold millions of cars with internal combustion engines in China since the 1990s. However, he did not take seriously the threat posed by Chinese brands such as BYD, Geely and Nio, which have focused on developing fully electric and hybrid cars and building a supply chain to support them.

Twilight not only in Wolfsburg

Now, as the 87-year-old automaker faces the prospect of layoffs and factory closures as it seeks to return to profitability, Volkswagen’s heightened woes epitomize the overall mood of a country struggling with a shrinking industry and an economy that has contracted for a second year in a row.

The problems holding back the profitability of Wolfsburg-based Volkswagen’s flagship brand — an expensive workforce, cumbersome organizational structures and an inability to keep up with the progress of Chinese automakers — are plaguing the entire economy.

Photo: Profimedia.cz

Company management and trade unionists at a meeting before the first round of negotiations last month in Wolfsburg

“The fact that VW, Germany’s largest car manufacturer, the largest industrial employer and the world’s second largest carmaker behind Toyota, is no longer ruling out plant closures and forced layoffs shows how deep the German industry is now in crisis,” said Carsten Brzeski, chief economist at ING Germany. .

Managers vs. unions

“Thousands of VW employees held a rally last month before the first round of wage negotiations with the company’s management. Workers blew whistles and beat drums, vowed to defend 120,000 jobs in six factories in Germany, and demanded a seven percent wage increase,” described the NYT reporter.

However, company representatives pointed to the generous benefits that employees enjoy, including the possibility of up to 36 days of vacation – six days more than the standard in the industry.

“We have to reduce our labor costs in Germany,” said Arne Meiswinkel, VW’s head of human resources and the company’s chief negotiator, when negotiations began.

The employees defend themselves and claim that while they are being asked for concessions, Volkswagen paid out 4.5 billion euros (113.67 billion crowns) in dividends last year. The automaker also announced this year that it will invest up to five billion euros (126.3 billion) in Rivian, an American manufacturer of electric trucks that is struggling with a loss.

“Try to explain it to the employees here,” said Stefan Henze, a union representative from Volkswagen’s software division. “It doesn’t go together.”

And what next?

Germany’s influence in the European Union is not as great as before anyway. EU punitive tariffs on Chinese e-cars failed to stop, even though Germany and the German automobile industry were clearly against it, the Bild newspaper drew attention to a passage in the American newspaper.

“One should simply look at the fact that there are fewer regulations, companies could behave more nimbly and further investments would be encouraged,” recommended Erasmus Kersting, professor of economics at the University of Pennsylvania in the US, who grew up in Hanover and studies German economics.