Zeitenwende: Germany Is Forgetting How to Make Cars

"Will Germany forget how to make cars? Only a few years ago the question would have sounded preposterous. After this week, you have to wonder. American voters in particular should be asking, since soon we may be posing the same question about Detroit.

The thought is occasioned by news Monday that Volkswagen is thinking about closing three factories in Germany -- the first factory closure within German borders in the company's 87-year history -- axing 10,000 jobs, and slashing pay for those workers who remain. The company on Wednesday announced its after-tax profit fell 64% in the third quarter compared with the same quarter last year, and by all accounts it will struggle to meet its profit target for the year.

One could blame this, as German politicians are keen to do, on management failures at a company that's been mired in a global emissions-test-cheating scandal for nearly a decade. This is a tough case to make, in part because the state government of Lower Saxony owns a 20% voting stake in the company.

But blaming management isn't a sufficient explanation because Volkswagen isn't alone in its travails. A grim reaper is killing blue-collar jobs by the tens of thousands in Germany's auto industry. His scythe is Europe's electric-vehicle mandates.

Europe's forced transition from internal-combustion cars to EVs could on net cost 190,000 automotive jobs in Germany by 2035, according to a study released Monday by the German Association of the Automotive Industry and consulting firm Prognos. The auto industry at its peak, in 2019, employed around 958,000. Roughly one-quarter of those net job losses already have happened, the study estimates, as the EV transition has gathered pace.

EV manufacturing is changing both the scale and the nature of auto employment. EVs require fewer total workers to produce compared to traditional cars, and also different types of workers. EV production is heavy on software engineering and light on metalworking, for instance, which means a loss of high-paying blue-collar jobs.

The truly startling thing about this analysis and others like it is that this is the best case. These estimates assume healthy demand for EVs, such that job losses are caused by the shifting workforce needs of a new product.

Reality is proving much less rosy. Soft demand for EVs has prompted warnings of downsizing even at plants still churning out internal-combustion cars. European Union rules set a quota for EV sales as a proportion of an automaker's total sales. Stellantis Chief Operating Officer Jean-Philippe Imparato said recently that if his company can't foist more EVs on unwilling consumers, it will produce fewer regular cars instead to maintain the correct proportion of EVs in its sales book.

These displaced auto workers may have nowhere else to go in the economy, as Germany risks sinking into an industrial Dark Age. Sentiment in surveys of manufacturing managers is gloomy across the board and unemployment is creeping upward, so far ameliorated only by the difficulty of implementing layoffs quickly. Climate policy again is a prime culprit, as the Berlin-imposed transition to renewable energy forces higher charges for less reliable electricity on manufacturers of everything.

Lurking behind all this are two emergencies. One is the calamity for individual households whose breadwinners are pushed out of previously stable trades by a political vanity project by the progressive left.

The other is the economic disaster of "human capital" destroyed. The 190,000 people who will no longer be employed by Germany's car industry after the green transition, for instance, are 190,000 people who know how to perform highly skilled tasks. They will no longer be practicing those industrial arts or -- crucially -- passing them on to the next generation of apprentices and younger workers. Once that deep well of knowledge is depleted, it isn't obvious how it can be replenished.

In other words, Germany will forget how to manufacture internal-combustion autos.

This column has no brief for dying industries, which is why you've never read me complain about dwindling employment in candle making or fax-machine manufacturing. The German saga is a graphic illustration of why the forced transition to a zero-carbon economy is different.

Normal economic evolution is driven by new industries pulling consumers and workers away from dying fields and toward new opportunities. The green transition is happening suddenly and on an assumption -- made by politicians and activists and practically no one else -- that one can push unwilling consumers and labor out of currently thriving industries and into jobs and forms of consumption that don't exist but can be conjured forth with sufficient political will.

This is unpopular with consumers and destructive of jobs, and yet it could prove irreversible if the process is allowed to grind on for too long. Volkswagen's saga offers America many warnings. One of the subtler but more important is to stop before it's too late." [1]

Goats are waiting for us. Goats will enjoy the greenery on our streets.

1. Political Economics: Germany Is Forgetting How to Make Cars. Sternberg, Joseph C.  Wall Street Journal, Eastern edition; New York, N.Y.. 01 Nov 2024: A.15.