Car sales in Europe have dropped to their lowest level in three years.
According to data from the European Automobile Manufacturers Association, registrations in the EU fell by 18% year-on-year in August, totaling around 643,600 vehicles.
All major European automakers saw a decline in registrations, with no exceptions. The new car registrations for Europe's top three automakers—Volkswagen, Stellantis, and Renault—decreased by 14.8%, 29.5%, and 13.9%, respectively, compared to the previous year.
In key markets like Germany, France, and Italy, sales declines surpassed double-digit percentages, registering at 27.8%, 24.3%, and 13.4%, respectively.
The pure electric vehicle market has been particularly hard-hit, with registrations in August plummeting by 44% to about 92,600 units, causing its market share to drop from 21% in 2023 to 14%.
This marks the fourth consecutive month of decline for the European pure electric vehicle market. Tesla's sales in Europe fell by 43.2% in August. Additionally, Germany and France experienced drastic declines of 68.8% and 33.1%, respectively.
Moreover, news of upcoming plant closures and layoffs at Volkswagen has added a cloud of uncertainty over the future of the European automotive industry.
"A very unfortunate decision"
From the EU's sales figures for August, Germany saw the most considerable decline. One reason for this is that Germany ended its subsidies for new energy vehicles prematurely.
In September 2023, the German government terminated subsidies for electric vehicles aimed at businesses, leading to a surge in purchases in August of the previous year and, consequently, a nearly 70% year-on-year drop this August.
In addition to decreased purchasing power, experts attribute the decline in the German and EU markets primarily to policy uncertainty. Hans-Werner Sinn, former director of the Ifo Institute in Munich, pointed out that the abrupt cancellation of electric vehicle subsidies by the German government at the end of 2023 was "a very unfortunate decision."
As one of Germany's most prominent economists, Sinn believes that the European Green Deal, the EU's 2035 ban on combustion engines, and increasingly stringent vehicle emission standards have severely disrupted the market in a relatively short period, pushing the automotive industry towards a politically driven transformation path, with companies that failed to adapt quickly being left behind. Additionally, Volkswagen's diesel emissions scandal has put the entire industry on the defensive.
He also dismissed criticisms of European brand management, telling Deutsche Welle: "You can't say that anyone is asleep at the wheel in this market."
Carsten Brzeski, chief economist at ING Bank, believes that the European automotive sector is "undergoing a structural transformation," stating, "We can clearly see that the shift to electric vehicles has intensified global competition." He noted that the European automotive industry currently faces multiple issues simultaneously, all converging at once.
Brzeski attributes the main problems in the European automotive market to ongoing policy "flip-flops," such as "What to do with combustion engines? Should they be retained or phased out? When will they be eliminated? Will the deadlines be extended or not?" These questions remain shrouded in uncertainty.
Wolfsburg: The Next Flint?
In one of the oldest pubs in Wolfsburg, a customer worries whether the birthplace of Volkswagen will follow the path of Flint, Michigan—once known as "Motor City" and home to General Motors.
In the mid-1980s, General Motors announced that it could no longer produce cars in Flint due to declining sales and rising competition from low-cost Asian rivals. Since then, Flint has, like many other industrial decline cities in the U.S., faced repeated financial crises and is now one of America's most dangerous cities.
As he sips on tea spiked with rum, the gentleman gloomily points out that whether Wolfsburg, Germany’s "motor city," faces a similar fate will depend on Volkswagen's next steps in confronting slowing demand, intensifying competition, and high costs.
As the European automotive market shrinks, on September 2, Volkswagen Group announced it is considering the closure of "at least" one larger domestic assembly plant and one local parts facility while being forced to terminate an employment protection agreement in place since 1994 to further reduce costs.
Subsequently, rumors surfaced that Volkswagen may cut up to 30,000 jobs in Germany to enhance its competitiveness. The Volkswagen Group's labor committee stated that cutting 30,000 jobs is "baseless and completely unfounded."
Regardless of Volkswagen’s denials, tension is palpable; labor protection organizations are on alert and have entered a state of war. Hans-Werner Sinn is uncertain if the automotive industry can weather the current crisis but believes that Volkswagen is only the first of many future casualties.
Indeed, research from Bloomberg and other business data firms shows that one-third of production capacities at European factories owned by auto giants like BMW, Mercedes, Stellantis, Renault, and Volkswagen are underutilized, with some plants producing fewer than half of their theoretical capacities.
The Stellantis plant in Mirafiori, Italy, is in particularly dire straits, with production dropping by over 60% in the first half of 2024, leading to a halt in the production of the Fiat 500e electric vehicle since September 13. Meanwhile, the Belgian plant producing the luxury Audi Q8 e-tron also faces the risk of closure.
It is not just Germany; Fiev, the head of the French automotive supplier association, warned that due to falling car sales and the slowdown in electric vehicle markets, French automotive suppliers risk losing half of their jobs in the coming years.
Jean-Louis Pech, president of the French Automotive Equipment Industry Federation (FIEV), stated: "Given the current situation, the automotive industry will lose half of its jobs again in the next five years, which doesn't seem exaggerated, and this could happen very quickly."
"This is Volkswagen’s own issue"
"Without Volkswagen, there is no Wolfsburg." Anke Jentzsch, who joined Volkswagen as an intern over 20 years ago, emphasized the dire consequences that could arise from lay-offs at Volkswagen. She noted that the unemployed include not only automotive workers but also bakers and barbers in the area.
Brzeski, the chief economist at ING, stated that the decline of the automotive sector in Germany and Europe will undoubtedly threaten the region's prosperity. The automotive industry (including suppliers, dealers, and other companies dependent on it) accounts for 7% to 8% of Germany's annual economic output.
"Volkswagen is vital for Germany," said German Economy Minister Robert Habeck, who expressed the government's desire to assist Volkswagen in reducing costs without closing factories. However, he also pointed out that there are limitations to what the government can do, stating, "Most of the matters must be handled by Volkswagen itself; this is a corporate issue."
Sinn also believes that the government should not intervene excessively, warning that any centralized economic approach has no future and no place in a market economy. While aligning the European economy (including its automakers) with climate goals may be well-intended, it could "destroy our prosperity," asserting that any attempts to override market principles would ultimately ruin the European economy.
Amidst all the anxiety, another perspective emerges. Frank Schwope, an automotive industry expert at the University of Applied Sciences in Hannover, Germany, firmly believes that Volkswagen can weather the storm, considering the current sales dip to be merely a façade.
"The reality is that Volkswagen's profits are quite substantial," he told NDR, a regional broadcaster in Germany, noting that Volkswagen's operating profits in 2023 still amounted to €22.6 billion, with expectations of €20 billion for the current year. In his view, the management has created a false “doomsday scenario” aimed at suppressing rising wage demands and pushing for new government subsidies for electric vehicles.
(The original title was "Plummeting Sales, Plant Closures, Layoffs: The Apocalypse of the European Automotive Industry.")