Can the German auto industry survive? What Volkswagen’s crisis means for the country’s soft power
For more than a century, Germany’s booming car industry has fuelled the country’s thriving economy and sense of pride – but is it reaching the end of that road?
The German car industry is almost as old as the country. Fourteen years after unification in 1871, engineer Carl Benz unveiled his Patent-Motorwagen, widely regarded as the first practical automobile. Since then, the fates of Germany and its automotive sector have been closely intertwined. With the industry in deep trouble, however, this relationship could be a problem. Carmaking is so intrinsic to the country’s economic model and international reputation that its decline could diminish Germany’s influence across the globe.
Overtaken by Chinese competition, squeezed by US tariffs and left behind by electrification, the fate of the iconic Volkswagen (VW) brand is particularly revealing. Measured by revenue, the VW Group is still the world’s largest car company and yet it’s looking to cut about 100,000 jobs, close production sites and halve its current number of models by 2030.
We have yet to see what impact the painful structural reforms enacted by the group’s chief, Oliver Blume, might have. But what’s already clear is that this is no ordinary dip in the company’s fortunes. The recovery plan is deemed the most extensive restructuring in VW’s 89-year history. On the political side, the crisis is fuelling the rise of Germany’s far-right Alternative für Deutschland party (AfD), which blames the government for the decline of this automotive icon. On the economic side, in September, VW was ejected from Euro Stoxx 50, the Eurozone’s most important blue-chip stock index, showing how little confidence there is in the group. In the medium and long term, what will the decline of Germany’s most iconic industry do to its global soft power? For well over a century, the country’s car industry was emblematic of its adaptability, resilience and self-confidence. VW is a perfect example. What began as a project that sprang from Adolf Hitler’s ambition to create a true “people’s car” became the durable and popular VW Beetle after the Second World War. The British victors, in whose occupation zone Hitler’s car plant ended up, started series production.
The Beetle, once a product of the most destructive dictator in human history, reinvented itself as a symbol of postwar prosperity and peace. West Germany’s recovery, dubbed the “Wirtschaftswunder” (economic miracle), went hand in hand with VW becoming a popular global brand and the Beetle becoming the bestselling car of a single platform in history. Its transformation helped to restore Germany’s good name in the world.
Today, Germany remains the third-largest economy in the world, with about 6 per cent of its GDP still generated by carmaking. Its perceived political, diplomatic and economic might is underpinned by its image as a well-functioning, productive and purpose-driven nation that bounced back from the world’s greatest crisis.
By selling quality cars that symbolised exactly those values and attributes, the country reinforced this reputation at all levels, from investors and decision-makers to the ordinary man and woman buying a VW for its reliability or an Audi, BMW, Mercedes or Porsche for its design, performance and prestige. Approximately three-quarters of German-produced cars are exported.
For the first time, however, we’re seeing that confidence go into free fall. In 2013 a BBC opinion poll found that Germany was “the most popular country in the world”. Now surveys rank it low: from it being deemed one of the worst countries to move to by expats, to foreign investment in Germany plunging to long-term lows. It’s impossible to prove a direct connection between the two but the uncertain future of an industry that had once seemed an unshakable pillar of German self-confidence is bound to have played a role.
The fate of the German automotive industry will therefore shape more than its own economic outlook. After more than a century of cars helping to define Germany’s reputation for quality, reliability and resilience, the sector’s decline risks becoming a symbol of the country struggling to adapt to a rapidly changing world.
