Germany’s economy has cracked in several places. In the fashion sector, bankruptcies continue. The chemical sector is restructuring. Thousands of restaurants fear that bankruptcy awaits them. It’s shaping up to be a sad Christmas for retailers

There was nothing surprising when the German car colossus Volkswagen announced to its employees that the flagship brand will have to reduce its staff because it is uncompetitive, because it has too high costs in relation to productivity. VW, the main negative hero of the Dieselgate scandal, hardly manages to keep up with the times. But when other giants, such as Michelin, announce factory closures in Germany, when German restaurants close their doors and when stores go out of business in waves, then it means that the German economy itself is in trouble and can no longer keep up with the times.

That the management of the Volkswagen group is planning to reduce the staff within the flag subsidiary VW emerges from an internal announcement seen by Reuters. The company has a cost-cutting program of 10 billion euros since the summer. Downsizing will most likely not take the form of brutal layoffs or plant closures as management has previously talked about changing the “demographic curve” and cost-cutting measures are being discussed with powerful labor committees.

This measure, which at VW can be considered desperate – the VW brand is emblematic of German history and has the reputation of being the people’s car – comes after a series of uninspired strategies and technological failures. The group, like many of the European car manufacturers, refused for a long time to see the rise of electromobility and the death of the combustion engine and is adapting slowly, at great expense. Also, VW fails to progress quickly in the software department and implement now fashionable demands from drivers, such as a digital multifunction steering wheel.

These are problems that many German brands have, including Bosch. Made in Germany is no longer synonymous with innovation and quality, and because German companies rely on exports, this puts them at a disadvantage in the face of the export roller coaster of Chinese brands. The “lack of competitiveness” of the German operations for the European and export markets was mentioned by the French tire manufacturer Michelin when it announced the closure of three plants in Germany the other day. Production in Karlsruhe, Trier and Homburg will be stopped through a process that will last until 2025 and will affect 1,500 jobs, notes Reuters. The customer service center will be moved to Poland.

Michelin currently has 8,000 employees in Germany, Austria and Switzerland. “The decision is related to the growing competition for cheap truck tires,” the company said in a statement. Michelin also closed a German factory in 2019. German business and the government in Berlin have increasingly relied on cheap gas and oil imported from Russia to gain competitive price advantages in international markets. When Russia attacked Ukraine and energy became more expensive, dependence on Russia became a disadvantage.

This disadvantage stands out especially in the chemical industry, German companies intensively using Russian oil as a raw material. The chemical industry association VCI says the sector is being forced to curb costs by shutting down production lines, exiting certain businesses and moving investments abroad. The giant BASF started the year by announcing layoffs and cost cuts. Evonik, also from the chemical industry, is restructuring its pet food division.

Last month, another giant, Lanxess, presented a plan to reduce staff. Layoffs and restructuring, even if they are not immediate, have the power to demoralize consumers who are already more cautious with their spending due to price increases. This prudence is clearly visible in the restaurant sector, which is also forced to raise prices to cover higher costs. Customers are dissatisfied, which is felt in consumption.

Businesses in the sector have been protected during the pandemic by tax exemptions and tax reductions offered by the government. As restaurant customers are no longer generous, if the government returns taxes to pre-pandemic levels, around 12,000 businesses could close, warns an association of restaurants and hotels.

But consumer caution is already wreaking havoc in the clothing retail world. From the beginning of the year until October, no less than 94 fashion and sports retailers requested insolvency in Germany, according to the magazine dedicated to the TextilWirtschaft sector. Signa Sports, a subsidiary of the Signa real estate empire that also filed for insolvency, is just one of the names. In particular, the footwear trade was hit by the new trends on the market. It is the continuation of a trend that gained speed during the pandemic.

Last year, 1,500 shoe stores closed, or 10% of the total in Germany. Reno, the country’s second largest shoe retailer, filed for bankruptcy in March this year. And Peek & Cloppenburg, one of the leaders of the fashion trade, filed for insolvency in March and came out of this restructuring process. It eliminated 350 jobs at the Duesseldorf headquarters. That’s the only way he managed to survive. The outlook is not encouraging. In September, retail sales unexpectedly fell. Businesses are making gloomy predictions for the Christmas season.