Point of view

The economic crisis of the Volkswagen concern: what the world is saying about the problems of Europe’s largest auto giant and possible consequences for Ukraine

The German concern Volkswagen, which is the largest car manufacturer in Europe, is currently experiencing a serious economic crisis, which may have significant consequences not only for the German economy, but also for the global automotive market, including Ukraine. The crisis phenomena that engulfed this giant concern point to deep structural problems that cannot be solved by the usual methods of austerity. Even though the company’s profits reached a significant amount of 17.6 billion euros in 2023, this was not enough to stabilize the situation.

VW’s core brand is gradually becoming unprofitable, with a margin on sales down to 2.3%. These indicators demonstrate a deep crisis that threatens both the company’s production capacity and jobs in Germany.

The German concern Volkswagen – the largest car manufacturer in Europe – no longer excludes the closure of production branches and the reduction of jobs already in Germany itself. According to the board of directors, previous austerity measures will not be able to prevent the company from slipping into the red. Industrial councils and trade unions accuse the company of unsatisfactory management – and call on the concern instead of the announced measures to focus on the production of more competitive products.

Observers in the foreign media single out several reasons for what is happening.

Viennese Kleine Zeitung looks at the root of the problem:

“The profit in 2023 amounted to 17.6 billion euros, which is clearly higher than the results of 2022. Many can only dream of such indicators. So what’s the problem? It lies much, much deeper. The main VW brand is gradually experiencing losses, the profitability of sales has fallen below three percent – to the level of 2.3 percent, and electric mobility, which began to gain momentum as a result and after the diesel scandal, is experiencing a decline. In China, the most important of the individual markets, there is a decrease in the number of sales, which leads to a reduction in profits.”

New Zurich newspaper (Switzerland) writes that competitors demonstrate the best results:

“VW also lags behind in outwardly visible performance indicators. While its global rival Toyota sold 11.2 million cars last year with 380,000 employees, Volkswagen needed 680,000 employees to produce 9.2 million vehicles. And the matter here is not only management miscalculations, but also the fact that the VW concern with its six central plants and seven branches in Germany is too expensive to produce and employs too many employees, primarily at the central production site in Wolfsburg. In addition, there is excess capacity, as a result of which some plants are now idle – and their fate is uncertain.” – it is noted in the edition.

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Der Spiegel (Germany). On the example of the VW crisis, one can see the problems that have engulfed Germany as an industrial site as a whole, – states the Hamburg weekly Der Spiegel. In addition, the publication notes:

“Labor and energy costs are higher than anywhere else, even European industrial sites, such as Italy or France, are cheaper. … So far, suppliers such as Continental and ZF have announced their intention to cut jobs and close factories. Now the crisis has hit VW, the country’s largest industrial employer, with all its force. The heads of the concern in Wolfsburg, considering everything, woke up from their sleep. But have the politicians in Berlin woke up? … The nation of automobile manufacturers needs a vision for the future. In what direction will the country move in the coming years? What profit can an industrial site offer? The answer to these questions must also be given by the federal government
state”.

wPolityce.pl (Poland) points out the failings of the industry in general:

“VW’s problems are just one example of the general state of the automotive industry in Europe. It is not easy – due to the rising prices for energy carriers (including those caused by Russia’s aggression against Ukraine). Another problem is the strong competition from Asia and the USA – especially when it comes to electric cars. Despite large-scale investments in restructuring production, European companies are unable to bring to the market affordable electric vehicles that could increase sales. The fear that Chinese companies will flood the market is so great that in July the European Commission even decided to introduce tariffs.”

Večernji List (Croatia). This crisis is much more important than, for example, the results of the elections to the Landtag, – the Zagreb-based Večernji list believes. The publication also writes:

“News about the economic earthquake and negative changes in the German auto industry are more important than the results of certain parties in the elections. …Germany can once again become an example and a reminder for us. When we focus on particular issues in Croatia, such as the Yugoslav flag at the Bijelo dugme [White Button] concert or the nationalist symbols at the Thompson concerts, it is worth remembering that real life runs parallel to these discussions. It would be better for everyone in Croatia and Germany if we panicked less about politics – and worried more about the economy.”

One of the key reasons for the concern’s decline is a general slowdown in demand for electric vehicles, especially in China, one of VW’s key markets. The decline in sales in this country affects the entire profitability of the company. In addition, the concern faces extremely high production costs. In particular, as noted by the Swiss edition New Zurich newspaper, Volkswagen is behind its global rival Toyota in terms of efficiency. Despite having more employees, VW produces significantly fewer cars, which makes production too expensive, especially at key plants in Germany.

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How will it affect Ukraine

Ukraine is one of the countries that actively cooperates with the European market in the field of supplying automotive spare parts and components for large car manufacturers, such as Volkswagen. The crisis of this concern can directly affect Ukrainian suppliers, since a decrease in production volumes or even the closing of factories in Germany will mean a decrease in demand for components. This may lead to a decrease in export supplies from Ukraine, a reduction in the production capacity of Ukrainian enterprises, and a loss of jobs in this industry.

In addition, it is important to consider that Volkswagen, like other European car manufacturers, is betting on the electric vehicle segment. However, as analysts note, European companies have so far failed to create affordable electric cars that would meet consumer expectations. In this context, Ukraine, which seeks to integrate into the global processes of development of green energy and electromobility, may lose potential investments or opportunities for the development of this industry if the European giants continue to experience crises.

However, the Volkswagen crisis may also open up new opportunities for Ukrainian manufacturers. If some European players are forced to reduce their production volumes, it may give Ukrainian companies a chance to occupy a niche in the European market. Ukrainian enterprises specializing in the supply of auto parts or other components for cars can take advantage of this situation if they can adapt to the new conditions and offer competitive products.

It is also worth considering that Volkswagen is one of the companies that makes large investments in new technologies, in particular in the field of artificial intelligence and electric vehicles. If the crisis continues, it may lead to a decrease in investment in innovation, which will affect the overall development of the technology industry in Europe. For Ukraine, this means a potential decrease in opportunities for cooperation in the field of innovation and technology.

So, the Volkswagen crisis is a serious challenge for the global automotive industry, and Ukraine, as part of the global market, can also feel the consequences of this crisis.

 

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