The 87-year-old legacy of Volkswagen’s German production is in the balance

On Monday, news broke that Volkswagen is considering closing factories in Germany. The auto giant is facing declining profits due to slowing sales in China and other major markets. The development comes as Europe’s largest economy teeters on the brink of recession after reporting a slight contraction in growth in the second quarter. Earlier this summer, VW’s Audi unveiled a $1 billion investment in Mexico as the company’s future production could be overseas in America.

Several financial institutions report the potential plan to close the VW plant, including Bloombergwhich said: “VW is considering unprecedented factory closures in Germany in a bid to cut deeper, dealing 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 lagging even further in terms of competitiveness”.

Bloomberg noted: “Any shutdowns would mark the first closures in Germany in the company’s 87-year history, setting VW up for a clash with powerful unions.”

Financial Times quoted Daniela Cavallo, president of the board representing VW workers, who wrote in a memo to workers that VW brand chief executive Thomas Schäfer “acknowledged” on Monday that cost-saving programs had failed by several billion euro, pushing VW into the red.

“As a result, the executive board is now questioning the German factories, VW’s internal collective wage agreements and the job security program that runs until the end of 2029,” Cavallo said.

Cavalla called the plans “an attack on jobs, our jobs and our collective bargaining agreements.”

VW’s deliveries in China fell 20 percent amid a broader decline in gasoline vehicles in the second quarter. A spokesman told Reuters in June: “We don’t expect an easy year.”

Meanwhile, VW’s Audi plant in Brussels came under scrutiny this summer after the automaker announced a billion-euro ($1.08 billion) investment in electric vehicle projects in the Mexican state of Puebla. There are growing risks that Audi will start moving electric vehicle production to Mexico.

In addition to battering VW sales and the EU’s largest economy at risk of recession, the country’s political environment has become even more chaotic.

The populist Alternative for Germany, or AfD, became the first far-right party to win a state election in Germany since 1945.

The rise of populism is led by a national government led by weak liberals who have overseen an economy with high inflation, disastrous immigration and growing skepticism about military aid to Ukraine. These are all new pressures from the centre-left government of Chancellor Olaf Scholz.

In the markets, VW shares in Germany recently dipped below Covid lows, hitting levels not seen since 2011.

Maybe The West is sabotaging Russia’s Nord Stream pipeline that hooked Germany on cheap NatGas wasn’t such a great idea as Europe’s biggest economic power becomes less competitive. This only suggests increased risks of de-industrialisation, job loss and more socio-economic discontent across the board.

By Zerohedge.com

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