"An October surprise for the U.S. election may have arrived this week -- in Germany. Word that Volkswagen could close three vehicle factories, cut 10,000 jobs and impose steep across-the-board pay reductions is a warning for Americans about the peril of Biden-Harris climate and Ukraine policy.
The news was communicated to workers on Monday by the head of the company's labor-relations council, and to describe it as a shock to Europe's largest economy is an understatement. Volkswagen Group employs some 300,000 in Germany with 10 factories for its flagship VW brand. It has avoided involuntary layoffs for three decades and hasn't shuttered a factory in its home country in its 87-year history.
The auto industry is the backbone of Germany's, and thus Europe's, industrial economy. VW operates factories in most European countries and owns brands such as Spain's Seat and the Czech Republic's Skoda. If something's wrong at VW, something's seriously wrong in Germany and Europe.
Politicians predictably are blaming management, with some cause. The company hasn't recovered fully from the reputational and financial damage of the dieselgate scandal when the company was caught installing software in cars to thwart emissions tests. High labor costs encouraged by an aggressive union in concert with the Lower Saxony state government that owns 20% of the voting shares don't help.
A bigger share of the blame lies with politicians, however, especially for their climate and Ukraine policies. Germany's auto industry is trapped in a vise between higher energy prices that drive up the cost of production, and electric-vehicle mandates that drive down sales. VW is cracking under the pressure.
Electricity prices for large industrial users in Germany are well above the European Union average, let alone the U.S., China or Japan. This is largely the result of Berlin's decision to eschew coal and nuclear power in favor of renewables that are more expensive and less reliable, and sky-high natural gas prices. Natural-gas prices have been on a rollercoaster since Mr. Scholz committed Germany to Mr. Zelensky of Ukraine ("Zeitenwende") and supported gigantic sanctions on Russia that disrupted gas supplies. VW is the latest of many companies to scale back production in Germany to escape these costs.
Meanwhile, Europe continues its forced march toward electric vehicles. The EU requires that EVs constitute a higher share of vehicle sales each year, with internal-combustion engines phased out by 2035. This is forcing companies such as VW to divert large sums of investment capital to making EVs despite chronically soft sales.
The mandate also exposes European firms to new competition from Chinese companies that can deliver cheaper EVs to European consumers forced to buy them. This has led Brussels to impose tariffs on Chinese EVs, which Berlin opposed for fear of stoking a trade war with Beijing. Yet VW's sales now are faltering in China as well.
Stellantis has warned that it may also scale back car production to avoid running afoul of the Brussels EV mandate, and Ford is cutting several thousand jobs in Europe in its shift to EVs. This is all happening because politicians are forcing the companies to sell cars that consumers don't want.
Europe's auto-industry travails are painful evidence that Ukraine policy, and net-zero climate policy is the worst act of economic masochism in the West since the 1930s. At least the news comes in time for Americans to contemplate whether they want to continue making the same mistakes that Europe has." [1]
In Ukraine, we repeated the lesson of the Second World War: Without a good industry, military forces always lose.
1. Volkswagen Hits the Net-Zero Wall. Wall Street Journal, Eastern edition; New York, N.Y.. 30 Oct 2024: A.16.
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