Experts warn: Germany will not drag the Czech Republic anymore – Seznam Zpravy

Car emergency Volkswagen and by extension the entire European industry is entering the next phase. The company will report third-quarter results on Wednesday and management will meet again with the IG Metall union, which is threatening a strike at the company over layoff plans. According to an economist and electromobility expert Jan Staňka the company’s profits in the third quarter will fall compared to last year.

“With high probability, a decline in Volkswagen’s profitability can be expected, as car sales in China and Europe are falling year after year at a double-digit percentage rate. “Beijing is turning away from buying internal combustion cars from foreign brands, and sales of electric cars and hybrids have exceeded fifty percent of the market in recent months,” an expert for SZ Byznys predicts.

The events of the past few weeks support his suspicions. On Monday, VW management announced a plan to close three German factories, which is to happen for the first time in the company’s 87-year history. Analysts generally estimate that it could be races in Dresden, Kassel or Brunswick in Lower Saxony. Likewise, the company wants to cut employee salaries by 10 percent, according to the Financial Times. Opinions differ on how quickly these events will affect the Czech automotive industry and supply chains. But they have no doubt that it will happen.

“Czech cars are certainly affected by the closing of factories in Germany, as several subcontractors are based here. At the same time, significant cost saving measures can be expected in subsidiaries Sorry Car. “Volkswagen, including Škoda, is still not coming up with attractive, affordable electric cars with modern software fast enough, and they cannot jump on the global electromobility trend as well as Tesla or Chinese and Korean car companies,” Staněk said.

according to Petra Knapa from the consulting firm EY, on the other hand, the latest trends in the crisis of the car industry, under which the Czech Škoda is also, will not directly affect the Czech car sector.

“So far, I think that Škoda Auto is protected from these problems and they do not directly affect it. However, the context and the mood in VW’s concern may have some influence on it, and of course there may be similar problems in the long run,” says Knap car market expert for Byznys SZ.

While the Czech Škodovka is still safe for now, according to the second expert, the European car crisis is affecting supply chains. As experts said for Seznam Zprávy, Czech companies are also laying off workers due to the weakening German economy. They have reported to the Labor Office for the past three months massive layoff of 31 domestic employers. Among them, for example, the manufacturer of parts for engines Brawe or the company Beneš a Lát specializing in products made of aluminum and plastic alloys.

“For some suppliers, the closure of the Volkswagen factories could be a clear sign that the situation will not improve and that a response is required. In the automotive industry, it is primarily a question of whether you can get a job as a supplier of the next model, and you decide accordingly in terms of investments and capabilities. The actual closing of German factories and the transfer of production to other plants will increase the risk of lower volumes for other projects,” Knap explains the situation.

According to the previous results and the upcoming forecast for the year 2024, the problems of the company and its affiliated companies can be expected again. For the second season Volkswagen reported an operating profit of almost 5.5 billionwhich represents a decrease of almost 2.5 percent compared to the previous year. According to the company’s September 2024 forecast, which will follow on Wednesday, VW expects a total of about 9 million vehicles to be delivered to customers this year, and VW delivered a quarter of a million more in 2023.

According to Knap, the Czech Republic must prepare for Germany not to pull the domestic economy up in the coming years.

“The direct impact of Volkswagen products on the Czech economy will be limited in the short term. However, the main indication is that even one of the largest car manufacturers in the world by sales is facing serious problems. It already gives a very clear message that the German economy will not pull us up for years to come, but that they will slow and moderate it. In particular, businesses connected to traditional automotive supply chains are at great risk,” the expert measures the risks.

The main reason for the current situation in the European car industry is seen by experts and the global media in the Chinese competition, especially in the electric car market. The Asian powerhouse is pushing European car makers out of the market, and Volkswagen is not the only company in the industry considering major cuts and layoffs.

The company Stellantis, which has brands in Europe Opel, Fiat a Peugeotunder intense pressure from Italian politicians and unions to keep its oldest Fiat factory in Turin despite falling sales, writes the Financial Times.

Stellantis’ French assembly lines are moving to lower cost countries such as Morocco and Turkey due to lower costs. Earlier this month, hundreds of French workers protested outside the Paris motor show. Among them are people from supply companies, including, for example, Bosch. The crisis affects the entire EU economy. The European car industry employs nearly 14 million people and accounts for 7 percent of the Union’s GDP, as the report says former governor of the European Central Bank, Mario Draghi.

Manufacturers from the old continent are also afraid of the strictest emission limits set by the European Commission for 2025. From the first of January next year, all cars that drive must Union roads have reduced their carbon footprint from 116 grams this year. of CO2 to 93.6 grams per kilometer. If he doesn’t do that, the manufacturer will pay a fine of 95 euros, ie about 2,400 kroner for each additional gram of CO2 produced.

As a result of the growing problems, the voices that want to find a common solution from the industry are multiplying. One of them is the Draghi report mentioned above. But at the same time, cooperation is not going well even within one of the affected car companies, Volkswagen.

The company’s management is also unsuccessfully trying to find common ground with the German trade unions from the IG Metall union. They rebel against the planned measures of VW management. What worries the unions the most is that he wants to end the job security program. This has been in force since 1994 and has prevented the dismissal of workers until 2029. According to experts, none of the parties involved is in crisis. Experts hope that the meeting on Wednesday will lead to movement on both sides and that the unions will go back down. Nothing else will benefit the company.

“Radial actions are required. Although we understand that in most cases unions must protect the interests of their members, in this case they may have to be willing to make significant concessions in order to maintain reasonable production volumes in Germany,” says Knap. Staněk thinking the same thing.

“For me, I believe it is desirable that the unions show constructive cooperation if the concern is going to be viable in the future,” he said.

However, it is unlikely that the trade unions will stop the situation. Daniela Cavallo, the head of VW’s works council, told employees at the company’s Wolfsburg headquarters on Monday that VW boss Oliver Blume was “in grave danger,” according to the Financial Times. We will stop negotiations and do what workers have to do when they are afraid to be there.”