A situation like this has never happened before. Volkswagen is considering closing its two German factoriesthe first time in the 87-year history of the company. The board would also like to terminate the employment protection agreement with trade unions, in force since 1994. It is also significant that, according to analysts, the targets include plants in Dresden, Saxony – where local elections were held a few days ago (the other location is Osnabrück in Lower Saxony). Volkswagen is one of the largest car manufacturers in the world, employing approximately 680,000 people. This is more than just one of many stories about a large company struggling and having to make layoffs. Because Volkswagen is unique to Germany.
Volkswagen announces closure of factories
It's a surprise and quite a shock. Especially in the context of the condition of the German economy. This economy is not only stagnant, but there is no place in sight from which Germany could bounce back, what could become a driving force. For now, there is no light at the end of the tunnel
– comments Dr. Konrad Popławski from the Centre for Eastern Studies for Next.gazeta.pl.
This The economy shrank by 0.1 percent in the second quarter of this year. quarter-on-quarter (annualized, it rose by 0.3 percent). This has renewed fears of another recession – a technical recession is defined by two consecutive quarters of GDP decline, one has already occurred. The Ifo Institute has just lowered its forecast for the whole year and now expects zero growth – economic stagnation (He had previously assumed a slight increase in GDP.) “The German economy is stuck and stagnating, while other countries are experiencing growth,” said Timo Wollmershaeuser, head of economic research at Ifo. Volkswagen's situation fits in perfectly with this mood.
– The shock is even greater because it wasn't supposed to look like this. – notes Konrad Popławski. – Germany was to draw from globalization with all its might, to flood the world with its excellent cars of excellent quality. Yes, to build factories abroad, but only for weaker models, components and parts, possibly assembly plants. The most valuable production, engines, gearboxes, was to remain locally and Germany was to become doubly rich: to have lucrative places workmaintain control over technology and still reap dividends from branches abroad. Except that this model is starting to tip over. We have been seeing the symptoms of this for a long time, the first signal was sent by the diesel scandal in 2015 – the expert reminds.
“Germany's Crown Jewel” in Trouble
On Monday, when the company announced its plans, its CEO Oliver Blume emphasized that they were related to the very difficult situation of the automotive industry in Europe, which has been hit hard by competition from Asia, among other things. “We still have a year, maybe two years to turn things around. But we have to use this time,” said VW's board member for finance, Arno Antlitz, during a meeting with unionists on Wednesday. He added the shrinking of the European market to the causes of the problems – before the pandemic, 16 million cars were sold on the continent per year, now it's 14 million.
This is only part of the truth. Yes, it is true that we have a creeping crisis in Europe, which is reflected in consumer decisions. But this is also partly due to German mistakes, because high energy prices are also the result of gambling on Nord Stream 2.
– notes Konrad Popławski. In addition, there is the Chinese side of this coin. Volkswagen has long since placed a strong bet on China – and it is not the only one. At its peak, German automotive concerns had almost a quarter of the share in the Chinese market. However, the Chinese themselves started building this sector, but they immediately focused on electromobility – and this was a bull's eye for them. Electromobility means removing components from cars that the Germans were famous for, and the battery is becoming key. The Germans do not have great competences here, nor does the whole of Europe. – Volkswagen counted on conventional engines for a long time, and was also somewhat held hostage by good results, which did not motivate them to introduce a revolution. VW is afraid of this revolution, because it would require reinventing the corporation. Breaking long-standing ties with sub-suppliers, often family businesses. It would have to be carried out knowing that Germany does not have many strong assets. Apart from brands, but these days the consumer is less and less loyal – notes the OSW analyst.
The history of Volkswagen is interesting and important, that this company like no other is a symbol of the German economy and currently the troubles that are plaguing it. And even much more.
This is one of the pillars of the German economy, which is based on the chemical, automotive and machine industries. Only that the chemical and machine industries also create products for the automotive industry, which is the pearl in Germany's crown. Therefore, its situation determines the situation of the entire German economy. In other words: the automotive industry is a barometer of the German economy
– says Poplawski.
And this sector also affects the condition of the entire industry, which is not in the best of shape. – The weakness of the German industry is clearly visible in the stock market indices. The main DAX is going up, but MDAX is already in the red. And this is because in DAX we have 40 giants, which to a large extent do business with foreign countries. MDAX is medium-sized, operating mainly in Germany. Those who are internationally networked are growing, those from the domestic market are doing worse on the stock exchange – says Bartosz Dudek, editor-in-chief of the Polish Section of Deutsche Welle, to Next.gazeta.pl.
Germany is an analog country in a digital world. Literally, because one of the problems of this economy – let's remember, the largest in Europe and one of the largest in the world – is a very low level of digitalization. There is also a lack of investment in innovation, in infrastructure, according to Popławski “Germany has been eating away its success for years”. But these are not all the problems.
Historic local elections in Germany
And here comes the topic of the recent local elections in two states – Thuringia and Saxony. They were significant for several reasons. Firstly, far right, AfD for the first time since the end of World War II, she won advantage – in both states it won over 30 percent of the votes, with first place in Thuringia and only the CDU ahead of it in Saxony. Secondlyanother populist party, this time left-wing, recently founded Sahra Wagenknecht Allianceshe had double-digit result – as an electoral debutant. Thirdly, coalition partners government the federal passed the worst election result in history. In addition, local elections will be held in Brandenburg, which borders Poland, in a moment (September 22), and there, too, the AfD is leading in the polls.
The main campaign issues were the war in Ukraine and migration, a topic often eagerly seized upon by populist forces. This time, just before the elections, the issue was reinforced by the tragic attack in Solingen (this is western Germany). Although Olaf Scholz's government reacted quickly by introducing restrictive changes to the law, this did not greatly aid the popularity of his cabinet.
The above-mentioned factors were played up most in the media, but the economic and social situation was also one of the sources of the AfD's success.
– In Thuringia and Saxony, GDP is shrinking. In Brandenburg, it is different, and there, although the AfD has a chance of first place according to polls – about 25 percent support, the ruling SPD can count on about 20 percent and the CDU on about 19 percent. This will be a slightly different coalition puzzle – says Bartosz Dudek from Deutsche Welle. In his opinion, the most important thing here is psychology
Germans in the eastern states still feel like second-class citizens. It is true that in the boards of companies or in management positions at universities, the percentage of people from the east is negligible. Considering that the eastern states have around 13 million people, or almost 1/6 of the entire population of Germany, the residents of these areas are underrepresented. This is the reason for the frustration of the residents of eastern Germany. We know from research that only 1/4 of those who vote for the AfD are radicals, far right. Most of them are people who clearly want to show in this way that they do not like the way the mainstream parties treat them.
– he notes. He adds that although more refugees live in the western states, the resentment in the east is much stronger. And this is political gold for populists of all stripes. – East Germans believe that the government in Berlin cares more socially for immigrants from distant countries than for its own citizens – he says.
These elections are a red, or rather brown card for Olaf Scholz's government. The SPD barely made it into the lantags, the liberal FDP, the coalition partner co-governing Germany, did not make it at all, the Greens only made it in Saxony and that too barely. That speaks for itself. It is an absolute disaster.
– Dudek assesses. Of course, these are just two states, the election result at the federal level will be completely different. Nevertheless, for the ruling coalition it is a signal of a very bad assessment.
Against this background, the definition of Germany as “the sick man of Europe”. According to the OSW expert, it is justified.
The problems of this economy are very deep and are the result of many years of neglect. The question is whether a brave political leader will be found who will be able to shake this country up. It seems to me that for now it will be heading towards several years of stagnation and perhaps from this stagnation a force will be born that will be ready to refresh the German economy. Let's hope it is not too radical a force.
– summarizes Konrad Popławski.