The road looks rocky for the automotive sector

For the first time in its 87-year history, one of Germany’s leading traditional automakers, Hitler’s “people’s car,” is shutting down manufacturing plants in the country.

The closures are the result of a crisis that has been a long time coming, but one that the industry has ignored. VW is in crisis due to strong pressure from the unions against radical cost cuttings, which are trying to hold on to privileges acquired over decades, such as a guarantee of a job for 30 years, in what was the country’s most important industry.

But the labor crisis is, in this case, only one indicator. The reality is that labor costs, along with the structure of the income statement, are reducing the company’s margin, which has gone from 3.8% last year to 2.3% this year. That’s many millions of euros amid a crisis with no end in sight.

The company’s positioning is clearly unfeasible in the long term. Firstly, EVs, which the company has failed to invest in, are much cheaper to manufacture than traditional vehicles, so the company cannot create economies of scale. And what’s more, the income statement structure is so far removed from the one that VW — and all traditional car manufacturers in general — have, that it seems almost impossible for them to transition to EVs or even invest in companies that know how to manufacture them anymore.