More Layoffs: How Germany’s Car Industry Crisis Will Hit the Labour Market?

Germany’s car industry, once a pillar of economic strength, is now facing an unprecedented crisis, sparking concerns about the future of employment. This is the report after speaking with several economy and labour experts to uncover the potential effects of these challenges on the job market, particularly within the automotive sector.

Volkswagen at the Center of Attention

Volkswagen (VW), one of Germany’s most renowned automakers, has announced plans to close factories and cut jobs as part of a strategy to boost profit margins amid a decline in sales. Although VW has not provided specific figures, a German media report suggested that up to 30,000 jobs could be at risk in the coming years. This news has triggered significant concern among workers and policymakers alike.

Representatives from both VW and its workers’ council are scheduled to begin talks in Hanover, focusing on how to manage the anticipated job cuts. While VW faces these challenges, it is not the only company feeling the strain. High manufacturing costs, weakening demand, and increased competition in international markets have hit many German automakers hard, with some being criticized for their slow transition to electric vehicle (EV) production.

Broader Impact on Germany’s Automotive Workforce

According to Statista, approximately 780,000 people were employed in Germany’s automotive industry in 2023, a decline from 834,000 in 2018. When factoring in sub-contractors and suppliers, the number of people reliant on the automotive sector could rise to as much as 1.4 million. This significant figure highlights the potential impact of layoffs on the broader economy, as some regions in Germany are heavily dependent on the automotive industry.

Experts like Carsten Brzeski, global head of macro analysis at European bank ING, emphasize that while job losses will not happen overnight, the challenges are real. Labour laws in Germany ensure that job reductions will be gradual, but smaller parts suppliers, particularly those producing components for combustion engines, are more vulnerable to immediate threats.

Unemployment Concerns on the Horizon

The ongoing situation at VW may be a bellwether for unemployment in other sectors. Germany’s statistical office (Destatis) recently reported that 1.65 million people were unemployed in July 2024, an increase of 346,000 from the previous year. This 26.5 percent rise in unemployment suggests broader economic challenges, with sectors such as manufacturing, construction, and retail facing notable difficulties.

Germany’s Labour Market Barometer, maintained by the Institute for Employment Research (IAB), reflects these concerns, showing that employment forecasts have dropped to levels not seen since the COVID-19 crisis. Although the overall employment rate remains strong, certain industries are shrinking, raising fears of further job losses.

Long-Term Solutions for Germany’s Auto Industry

As Germany’s auto industry navigates the transformations in both domestic and global markets, experts recommend long-term investment and reforms to ensure future stability. Brzeski stresses that a further wave of layoffs should not come as a surprise, while Dr. Enzo Weber, Head of Forecasts and Macroeconomics at IAB, highlights the importance of retraining workers for emerging fields such as hydrogen fuel applications within the automotive industry.

With the potential for further job cuts and a prolonged rise in unemployment, Germany must focus on adaptation to safeguard its workforce during this period of economic transition.

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