Germany Trembles

Volkswagen Considers Historic Closures

Volkswagen, the historic automotive giant, is at an unprecedented turning point. For the first time in nearly 90 years, the company is considering closing factories on its home soil, in Germany. This announcement, which sends shockwaves through an already pressured industry, reveals just how critical Volkswagen's situation has become in the face of growing competition and an unstable economic environment. At WOT, we view this scenario as a sign that even the titans of the automotive industry are not immune to structural upheaval, especially when strategic decisions struggle to bear fruit.

Crushing Competition and a Weakening Market

Volkswagen is facing a set of challenges it perhaps hadn’t anticipated on this scale. One major factor is the fierce competition from Chinese manufacturers, who are increasingly penetrating the European market with low-cost models, often electric, better suited to the demands of a price-sensitive public. While VW remains a heavyweight, the numbers don’t lie: sales are falling, and so are profits. The storied VW brand, long synonymous with ingenuity and reliability through iconic models like the Golf and Passat, is now perceived as the group’s weak link.

The European automotive industry is experiencing a very complex period. Electrification, rising production costs—especially energy—and the war in Ukraine have only exacerbated an already delicate situation. Volkswagen, which had made big bets on its electric transition program, has yet to reap the expected rewards.

A Cost-Reduction Plan Hitting Its Limits

Oliver Blume, CEO of Volkswagen, is clear: traditional cost-cutting measures—like voluntary departures or early retirement—are no longer sufficient. Plant closures and layoffs are on the table. This is unprecedented, not only for Volkswagen but for Germany, which has long viewed the automotive sector as a cornerstone of its economy. Since 1988, the company hasn’t closed any factories, let alone on its home turf. The message is unambiguous: Volkswagen must take decisive action.

At WOT, we see this plan as the direct result of a poorly calibrated adaptation. Last year, the group announced an extensive savings program, but the results have been slow to appear. The automotive industry is evolving fast, and without sufficient agility, even the giants risk being left behind.

A Broader Malaise for the German Economy

Volkswagen’s announcements don’t just concern the company; they highlight a deeper crisis affecting Germany. This country, which has long dominated the European industrial scene, appears to be losing its competitiveness. Rising energy costs, coupled with slowing growth, are weighing heavily on businesses. The automotive industry, the engine of the German economy, is particularly affected, and Volkswagen, with its 300,000 employees in Germany, is a powerful symbol of this vulnerability.

The German government, already under pressure, sees these announcements as an additional threat to its credibility. While similar layoffs have affected suppliers like Bosch, Continental, and ZF, the prospect of Volkswagen following the same path could worsen the economic gloom.

WOT’s Perspective

For us, this situation is not just another chapter in the history of German automotive but a true warning about the dangers of a too-rapid transition. Volkswagen, a flagship of the European auto industry, seems to be paying the price for a rushed shift, perhaps accelerated by the aftermath of Dieselgate. The drive to rebuild its image through massive electrification, coupled with aggressive restructuring, has neglected some of the foundations that made the brand strong, risking alienating a portion of its loyal customer base.

A counter-example to this approach is BMW, another key player in the German automotive industry. BMW has managed to moderate Europe’s mandates by adopting a more gradual transition to electric while preserving its DNA: the joy of driving. By not sacrificing its core values, BMW has succeeded in offering electrified models while maintaining what has drawn its customers for decades.

That’s the real difference: when strategic choices are made without regard for why customers choose a brand, it becomes an economic decision rather than a value-driven one. The risk is that, in the long term, these hasty decisions could lead to the extinction of a brand, no matter how iconic.
Volkswagen finds itself at a critical moment. The way it handles this crisis will dictate not only its future but also the evolution of the European auto industry. History has shown that a balance between modernity and heritage is possible, as long as a brand’s essence remains intact.

This is a story to follow closely.