VW Factory Threat Stress-Tests Germany’s Economic Model
Germany’s economic model, long sustained by cheap energy from Russia, robust trade with China, and cooperative industrial relations, is facing a critical test. Amidst rising costs, stiff competition from Asia, and energy shortages, Volkswagen’s (VW) unprecedented threat to close its German factories has shaken the country’s traditional consensus-based approach to labor relations. This marks a pivotal moment, raising questions about whether Germany’s industrial framework can survive the mounting pressures of the global economy.
The consensus model, which has historically united business leaders, trade unions, and politicians in Germany, has been a bedrock of the country’s post-war economic success. For decades, industry and labor groups worked collaboratively to make critical decisions, ensuring stability in the workforce and maintaining the country’s competitive edge. However, this harmony is under threat as companies like VW struggle to adapt to rising labor and energy costs, while battling competition from low-cost Asian automakers.
“De-industrialization is happening in Germany,” said Daniela Cavallo, head of VW’s works council, in a stark warning about the future of industrial jobs. She called for solutions to safeguard the German workforce, particularly in manufacturing, which still accounts for 27% of total employment—down from 32% two decades ago but still a significant figure compared to other advanced economies.
VW’s management, including Chief Financial Officer Arno Antlitz, has stressed the need for cost efficiency, warning that without changes, the company won’t succeed in its transformation. The company is negotiating with unions, and some have proposed a four-day workweek, a strategy that was used in the 1990s to cut costs while preserving jobs. However, it remains unclear if this solution is feasible in the current economic climate.
Adding to the complexity is the role of the state. Volkswagen’s second-largest shareholder is the state of Lower Saxony, where the company’s headquarters are located. Lower Saxony’s economy minister, Olaf Lies, has called for public investment to help industries adapt to the changing market. He highlighted the government’s responsibility in providing the necessary resources to prevent further de-industrialization. “This is putting many companies, and therefore Germany as a place to do business, in a very difficult situation,” he told Reuters.
The issue has drawn the attention of Chancellor Olaf Scholz’s coalition government in Berlin, which is under pressure to address Germany’s structural economic challenges. While both the economy and finance ministers agree that Germany needs a solution, they differ in their approaches. Economy Minister Robert Habeck, from the Greens, supports offering state guarantees to help the transition to electric vehicles (EVs), which are seen as critical to the future of Germany’s auto industry. However, Finance Minister Christian Lindner, of the pro-market Free Democrats, has criticized what he calls an overemphasis on EVs, rejecting further government intervention in the sector.
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The future of Germany’s industrial base is inextricably tied to these policy decisions. The Volkswagen crisis comes at a time when Chancellor Scholz’s coalition is grappling with broader political challenges, including the rise of the far-right in regional elections. Some argue that VW’s potential austerity measures could serve as a wake-up call for policymakers to take more decisive action. “If such an industrial heavyweight really does have to tighten its austerity programme and close plants, it is perhaps an overdue wake-up call that the economic policy measures taken so far need to be significantly increased,” said Carsten Brzeski, global head of macro at ING.
Volkswagen is not the only company feeling the pressure. Thyssenkrupp, another industrial giant, is undergoing a significant restructuring of its steel division, driven by rising costs and strong labor opposition. CEO Miguel Lopez has signaled a shift from previous strategies, demanding a comprehensive revamp. Similarly, BASF, the chemical giant, has announced that some of its plants are no longer competitive, raising the possibility of further closures.
Despite these challenges, many within Germany’s industrial circles remain hopeful. Christiane Benner, chair of IG Metall, Germany’s largest trade union, believes that forward-thinking solutions can help the country’s industrial sector weather the storm. “VW has survived difficult situations before,” she noted, underscoring the importance of innovation and collaboration in navigating the current crisis.
The decisions made in the coming months will have lasting implications, not just for VW, but for Germany’s entire industrial landscape. The future of the country’s economic model depends on whether it can adapt to a rapidly changing global environment while preserving the consensus-driven approach that has been its strength for decades.
