Opinion
The crisis at VW shows that the German model of prosperity is under threat. Instead of constantly conquering new countries and markets, the home base must urgently become competitive again.
This is original content from the Capital brand. This article will be available for ten days on stern.de. After that, you will find it exclusively on capital.de. Capital, like the star to RTL Germany.
The management of the VW Group wants to – and even considers – close or sell one or more plants in Germany. The shock waves that this news triggered reached far beyond Wolfsburg, Emden and Hanover. It is about market shares and sales that are disappearing; about jobs that are at risk; about know-how that could be lost.
But the explosiveness of Volkswagen’s crisis, which has been looming for a long time, is much deeper than that – suddenly it becomes very clear: Germany’s prosperity model is under acute threat.
The three golden decades of globalization are over
Before everyone starts complaining about Berlin once again, let me briefly state: This model was essentially based on three pillars, none of which initially had much to do with politics. Technical excellence in important industries and markets; a clever cost mix of domestic and global production, preferably in much cheaper regions of the world; and a perfectly functioning, global supply and production chain. These three principles formed the basis for the second German economic miracle, the three golden decades of globalization from the early 1990s to the Corona shock in spring 2020.
All the notorious adversities and disadvantages of a small and ageing country like Germany – few domestic raw materials, relatively high wages and salaries, a high level of regulation and demanding bureaucracy, comparatively high taxes and levies with a foreseeable shrinking population – all of this could be elegantly balanced out for a long time: German companies simply conquered the world. Anyone who crossed a street intersection in Beijing or Shanghai in the mid-2000s could not fail to notice: German car brands were lined up in long rows on the streets, including large and expensive ones. But Volkswagen was at the forefront. Market leader over all providers, more than 25 percent of sales and even more profits were generated for many years in the communist People’s Republic of all places.
All three principles have been shaken in recent years: German cars are no longer considered the ultimate in automobile manufacturing, especially in China; on the contrary; the globalized production and supply chains were first disrupted by a virus called protectionism, then by a virus called Corona, and later wars and conflicts were added to the mix; and the clever cost mix has now also been lost, as supply chains no longer function and markets are closing off.
Exogenous shocks are hitting VW particularly hard in recent months – and they are combined with the well-known structural weaknesses that have long been the case for industrial companies at this location: high costs, slow bureaucracy, too little investment, uncertain political conditions, a demographic development that is not exactly accelerating innovations and technological leaps. It’s just that the old evasive strategy no longer works.
VW cannot do without tough cuts
The big question now is: how much of the misery is the fault of the company’s management, and how much responsibility does the politicians bear? – 20 percent still belongs to the state of Lower Saxony – the question is particularly urgent here. But the answer to this is reminiscent of the chicken-and-egg problem: it is not so easy to say what came first, bad decisions and incorrect considerations by management or erratic interventions by politicians. At VW, everything is somehow intertwined with everything else, and that makes the solution particularly complicated.
Just before the start of this autumn of 2024, only two things are certain: Germany will pay a price for the upheavals in the global economy, the country’s prosperity model needs a complete overhaul. This will hardly work without harsh cuts, and these will be particularly painful in those sectors that have particularly benefited in the past: automotive, chemicals, and probably other traditional engineering sectors as well. Ideally, such a restructuring – this is the second lesson from the VW debacle – would be accompanied by a policy that promotes structural change and does not delay or unsettle it. Through smart reforms and through incentive systems that last and are not thrown out every six months.
The current federal government took office almost three years ago with exactly this aim. Unfortunately, it has achieved the exact opposite. It is never too late for politicians to make a change – but the task is getting bigger every week.
Source: Stern
