Volkswagen’s decision to significantly expand its job cuts has once again drawn attention to the German industry. The company is reacting to overcapacity, declining profits, trade barriers, and growing competition from Chinese manufacturers.

Volkswagen is not an isolated case.

Bosch plans to cut around 13,000 jobs, primarily in its German automotive business. Ford is significantly reducing its workforce in Cologne. Thyssenkrupp Steel intends to eliminate or outsource approximately 11,000 jobs. At BASF’s main plant in Ludwigshafen, the number of employees has fallen to its lowest level in decades.

Are these independent corporate decisions or signs of a fundamental structural change in the once-famed German economy?

A survey of approximately 1,300 companies conducted by the German Chamber of Industry and Commerce highlights the urgent need for action.

Roughly one in five companies is considering relocating investments or production capacity abroad, has taken corresponding steps, or has already done so.

Among industrial companies, the figure is around 40 percent. Among large industrial enterprises, it is approximately 60 percent.

This does not mean most companies will leave Germany. Nevertheless, it shows how critically many businesses now view the country as a place to do business.

High energy and labour costs, bureaucracy, lengthy approval processes, skills shortages, and economic policy uncertainty influence investment decisions. 

At the same time, other locations are attracting investors with subsidies, lower costs, and better access to growth markets.

Why the old equation no longer works

Germany’s economic success was long based on a favourable combination of factors: engineering expertise, qualified specialists, and a high-performing industry along with comparatively cheap energy, open world markets and growing demand from China.

Today, all components of this equation are changing.

With the Russia-Ukraine war and the sanctions against Moscow, the period of cheap Russian energy has largely come to an end. Energy-intensive companies, in particular, now face higher costs.

Furthermore, China is no longer just a buyer of German cars and machinery. The Asian country now produces its own electric vehicles, batteries, and industrial equipment, and increasingly exports them to Europe.

At the same time, the US is becoming more protectionist. Tariffs, subsidies, and national production standards are making access to the American market more difficult.

Related

Thus, Germany finds itself between two major powers that are increasingly using industrial policy as an instrument of geopolitical power.

According to the Federal Statistical Office, more than 140,000 jobs were lost in the manufacturing sector within a year.

The automotive industry was particularly affected, with its workforce falling to its lowest level in approximately two decades.

However, this does not automatically mean the end of the German industry. Some job losses are due to economic conditions. Another reason is the technological transformation.

Electric vehicles require fewer mechanical components than combustion engine vehicles. As a result, jobs in engine and transmission manufacturing are becoming less important.

At the same time, new fields of work are emerging in software development, battery technology, and semiconductor production.

The crucial question, therefore, is whether Germany creates these new value chains or increasingly outsources them abroad.

Germany’s labour-market paradox