By DCB Editorial, October 29, 2024
The war in Ukraine is responsible for Volkswagen’s decision to shut down at least three of its German plants. While VW executives might claim that this decision stems from restructuring needs or modernization efforts, the reality is grounded in basic economics. VW has often boasted about the efficiency and sustainability of its manufacturing cadence, positioning itself as an industry leader in productivity. However, when the United States destroyed the Nord Stream pipeline, Germany lost access to cheap natural gas.
The Nord Stream pipeline was a joint project between Germany and Russia, designed to deliver Russian energy to the entirety of Europe. Once the war in Ukraine began, European sanctions on Russia effectively severed Europe’s access to inexpensive energy. The destruction of the Nord Stream pipeline locked Europe, and especially Germany, onto a path toward deindustrialization.
There are significant, complex geo-political motives at play. In essence, however, Europe—particularly Germany—targeted the Nord Stream pipeline’s destruction. Russia faced minimal repercussions and continues to sell its energy to other global markets where it faces no sanctions. As a result, Russia’s economy has thrived while Europe’s, especially Germany’s, has declined, with Germany now officially in a recession.
The twist is that Germany now buys oil and gas supplies from India and Turkey, who simply resell Russian gas and oil at elevated prices. The shortsightedness of German politicians seems boundless. Higher energy costs have driven up manufacturing costs, making Volkswagen uncompetitive.
Volkswagen is facing significant challenges and has announced plans to restructure its operations in Germany. This includes shutting down at least three factories, laying off 300,000 employees, and reducing the size of remaining plants.
Additionally, the company is considering a 10% wage cut, a two-year wage freeze, and other cost-cutting measures. These actions are aimed at saving €4 billion and addressing the competitive pressures faced by Volkswagen and other European automakers.
On Monday, VW workers halted production at 11 German sites to participate in rallies protesting the automaker’s cost-reduction plan.
