Why you should care about the auto industry’s latest failures. The impact will affect the not just the global economy, but it impacts jobs, suppliers, communities and the future of the auto industry. 

Volkswagen is closing three plants in Germany, and Audi is halting production in Belgium, sparking fears of a crisis in Europe’s car industry. One significant factor impacting the industry is Europe’s high energy costs, which German carmakers say are four times higher than in China and the United States. 

VOLKSWAGEN’S DELIVERIES DROP AMID EUROPE’S CAR INDUSTRY WOES

VW is in a potential trade war with Chinese brands entering the German and European market. While nothing is official yet, top labor officials told Reuters that closing plants and laying off workers is part of an ongoing campaign to cut costs across the VW Group. Volkswagen stands proud as the biggest carmaker in Europe, and it has never closed a factory in its home country of Germany.

“Management is absolutely serious about all this. This is not saber-rattling in the collective bargaining round,” warned Daniela Cavallo, the head of Volkswagen’s works council, in a speech to employees. As of this moment, there’s no word on which factories would close or precisely how many workers would get laid off. But it looks like three plants and 100,000s plus workers will be laid off.

Volkswagen operates 10 plants in Germany and employs approximately 300,000 people. The plants that remain open and the workers that keep their jobs will be affected by the cost-cutting measures as well, according to a separate report. 

The group will allegedly downsize the other factories, cut the rest of the workforce’s salary by 10 percent, and freeze wages in 2025 and 2026. It aims to save about €10 billion (roughly $10.8 billion USD) by 2026.

Thomas Schaefer, the head of the Volkswagen brand, has previously said that German factories aren’t productive enough and noted that they’re operating between 25 and 50 percent above targeted costs. In turn, this eats into the company’s profits. 

Analysts told Reuters that several external factors compound this problem, including increased competition from Chinese brands and a lack of demand for electric cars.

Volkswagen hasn’t commented on the report, and it hasn’t announced plant closures or layoffs yet. It will lay out its plans during a meeting scheduled for Wednesday, October 30, when it also announces its third-quarter financial results.

GENERAL MOTORS

General Motors may have said that their latest round of white-collar job cuts are to their “software and service” employees but that’s not exactly true. The layoffs come from GM’s Ultium division which is the sub-EV company GM created to differentiate it from its gasoline engine department.

I can confirm that thermal engineers, who work on battery programs in Ultium have been let go from the company, without warning. Thermal Engineers play an important part in the development of EV’s because thermal management involves the cooling of batteries, power electronic systems, and the motors.

So, with news confirmed that GM has slashed its Ultium EV battery division, is it safe to say that the company now realizes that the future of GM isn’t electric and they are pulling the plug and drastically reducing R&D on future EV’s?

Sure looks like it.

General Motors is laying off more than 1,000 software workers globally. Most of the cuts will be in the U.S. at its tech center in Warren, Michigan. It’s letting go of 600 employees there. In a memo to workers viewed by Automotive News, GM said it is making the cuts to enable it to “move faster, pivot when needed, and prioritize investing in what will have the greatest impact.” Over the last several years, GM has been expanding its software team to help with its electrification and autonomous efforts because it believes those services can generate $25 billion in revenue by 2030.

MERCEDES CUTS S-CLASS PRODUCTION DUE TO SLOW SALES
Is the Mercedes S-Class no longer seen as one of the pinnacles of luxury? According to data from Marklines, in the first half of the year, S-Class sales were down 13% in China, 19% in the U.S. and 27% in Europe. So, in response Mercedes is reducing production to one shift for the first time. The S-Class is built at Mercedes’ Factory 56 in Germany and has been made on at least two shifts since the factory opened four years ago. The plant also builds the electric EQS as well as Maybach and AMG models. Mercedes will refresh the S-Class next year, so demand could pick back up with a new model.

STELLANTIS’ Q3 GLOBAL SALES PLUNGE
Carlos Tavares, the CEO of Stellantis is complaining about plunging sales in the U.S. market, which were down 20% in the third quarter. But he’s actually having problems all over the world. Stellantis’ sales also dropped in Canada and Mexico. They fell 17% in Europe. Maserati alone was down a stunning 60%. And in China, India and Asia Pacific they fell 30%. So while Mr. Tavares has been heaping scorn on his previous U.S. management team, he has a global sales problem on his hands.

Stellantis is struggling, and its troubles lie specifically with is North American business – home to Jeep, RAM, Dodge and Chrysler. The spotlight is on Stellantis and it seems like things are getting worse. Their third quarter sales in the U.S. were a disaster, falling 20%. For the year they’re down 17%. And investors are heading for the exits.

RAM 1500 PRODUCTION EXPANDS TO MEXICO
And in a move that is sure to infuriate the UAW, Tavares is going to add pickup manufacturing in Mexico. Stellantis already makes heavy duty pickups and vans in Mexico, but it’s expanding its plant in Saltillo to make Ram 1500s. Right now, those light-duty pickups are only made in the U.S. While Mexico offers lower labor costs, no doubt Tavares wants half-ton pickups made in Mexico so the UAW can’t choke off production during any future strike. We think that’s the same reason why Ford moved part of its heavy-duty truck production to Canada. It’s a game of chess, which is why Ford and Stellantis made these moves to prevent a checkmate

AUDI’S BRUSSELS PLANT LIKELY TO CLOSE
We’ve reported about the troubles at Audi’s EV plant in Brussels. And now it looks like the doors might close for good. Audi says it has been unable to find a suitable buyer for the factory and has rejected all offers it’s received. VW also looked into building future models at the plant and studied different uses for it but says it wasn’t able to come up with any alternatives. But this is likely just the beginning. Last month, Volkswagen warned that it may have to close factories in Germany for the first time in its history..

FORD’S Q3 NET INCOME DOWN 26%

Ford’s Q3 net income is down 26% and cost issues have caused it to drop its full-year adjusted earnings projection to around $10 billion. Ford is going to idle F-150 Lightning EV plant in mid-November for rest of year. They lose $40,000 for each vehicles sold. This is not sustainable. 

The impact is real and we will be watching an reporting back as the industry changes.

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