History-Reasons 3 Car Giants of the World Go to the Falls

Jakarta, CNBC Indonesia – The wave of collapse of the world’s car giants is starting to hit, especially in Europe. Several companies recorded a decline in sales and were forced to close factories and make major discounts.

At least three European car companies have been hit very hard in the last few years, namely Volkswagen (VW), Renault and Stellantis. The three of them are struggling to prevent the company’s performance from falling further.

The latest news comes from Europe’s biggest car company VW, which plans to close at least three factories in Germany, lay off tens of thousands of workers and reduce capacity at other factories as part of a major restructuring movement.

The head of VW’s workers’ representative council, Daniela Cavallo, said on Monday (28/10/2024) that this move was taken in response to the significant pressures facing the company, including energy and labor costs. high, stiff competition from Asian manufacturers, and declining demand in Europe and China.

“Management is very bad about this. This is not a bluff in a round of alliances,” Cavallo said at a meeting with employees in Wolfsburg, Volkswagen’s headquarters, as reported by Reuters.

He said this move could be the start of a major sale of Volkswagen assets in his home country, Germany. Cavallo did not specify which factories were affected or the exact number of workers out of about 300,000 workers in Germany who may be laid off.

The restructuring plan comes amid lengthy negotiations between VW and the unions to reduce operating costs. Cavallo also revealed that the company plans to cut Volkswagen brand wages by at least 10% and freeze wage increases until 2025 and 2026.

Previously, the CEO of the Volkswagen Group, Oliver Blume, said in a written statement that the company would likely take a comprehensive restructuring action.

“The European car industry is in a critical and very serious situation,” Blume said, as reported CNBC International.

“The economic environment is becoming more difficult, and new competitors are entering the European market. In addition, Germany, especially as a manufacturing location, continues to fall behind in terms of competitiveness,” he said.

Government Acts

This has also been a source of concern for the German government. German Economy Minister Robert Habeck even held a virtual meeting or “automotive summit” last month, which included representatives of the German auto industry to discuss solutions for struggling car manufacturers.

This meeting was held in accordance with requests to address the increasingly obvious decline in demand for electric cars in Europe.

European carmakers, including giants such as Volkswagen, Renault and Stellantis, are struggling with sales of their electric cars (EVs) falling below expectations, leading to overproduction.

In fact, based on Bloomberg Intelligence data, which is mentioned German waveone of the three major car factories in Europe – including those of BMW, Mercedes, Renault and Volkswagen – is operating below capacity. This situation is particularly evident at the Stellantis factory in Mirafiori, Italy, which produces the all-electric Fiat 500e, where production will fall by more than 60% in the first half of 2024.

Economist Carsten Brzeski from ING Bank assesses that the European car industry is in a period of “structural transformation” influenced by the global trend towards electric mobility. According to Brzeski, this is “a move that encourages stronger competition” throughout the automotive industry.

Stiff competition with Asian manufacturers

The pressure on European car manufacturers is getting worse with Chinese car manufacturers. Despite European Union tariffs on electric cars made in China, companies such as Geely, Chery, Great Wall Motor and BYD are still trying to get hold of the European market.

In fact, some of them plan to build electric car factories in Europe to avoid higher tariffs.

Hans-Werner Sinn, former president of the Ifo Institute, said that the rapid change in environmental policies in China and Europe has forced the automotive industry to change quickly. In addition, ambitious policies such as the European Green Deal and the ban on combustion engine cars from 2035 have significantly changed the market situation.

According to Sinn, countries such as China and France are taking advantage of the development of electric vehicles to shake the dominance of combustion engine technology that has been dominated by German manufacturers.

As a result, European car makers now see Chinese manufacturers as major competitors as they benefit from this transformation.

Threats to the European economy

Brzeski confirmed that a decline in the automotive industry in Europe, especially in Germany, would threaten the economic prosperity of the region. In Germany, the automotive sector accounts for 7% to 8% of annual economic output.

To keep the industry going, economist Sinn suggested creating a “climate club” to create equality among car makers in the world market. This idea, first proposed by Chancellor Olaf Scholz, aims to force the biggest CO2 emitters such as the European Union, China, India, Brazil and the US to end support for fossil fuels.

Meanwhile, auto industry observer Frank Schwope of the University of Applied Sciences in Germany believes that Volkswagen still has the potential to emerge from its sales slump.

It revealed that Volkswagen achieved an operating profit of 22.6 billion euros in 2023, and this year’s profit is expected to reach 20 billion euros. But, according to Schwope, Volkswagen’s management created this image of crisis to reduce demands for wage increases and support new subsidies for electric cars.

On the other hand, Stellantis, which is facing a sales crisis, has stopped production of the Fiat 500e in Mirafiori, Italy, for a month. Cynicism also came from Sinn, who called VW just an “early casualty” of the crisis and warned that the European car industry would face more challenges in the future.

(luck/luck)