How VW's Crisis Could Reshape the Global Car Industry

Volkswagen's reported plans for deeper job cuts and possible German plant closures have turned into a warning sign for the wider car industry. The company is being hit by weaker demand, high costs, US tariffs and tougher competition from Chinese electric carmakers. VW has not publicly confirmed the reported cuts, saying the issue will go through its internal decision-making process.

A crisis decades in the making

Volkswagen is reportedly plotting the biggest cuts in its history, tens of thousands of jobs, and whole factories on the chopping block. For decades, the company has been a shining example of precision industry and secure German jobs. That promise is now cracking. Behind Volkswagen's crisis sits a much bigger one: an entire industry watching cheaper, faster rivals from China eat into markets it once dominated.

Chinese carmakers are undercutting Volkswagen on price and speed in Europe and in China. US tariffs are costing the company roughly €4 billion a year, and net profit shrank 28% year on year. What makes this different to a normal restructuring story is Germany's unique corporate governance structure. Codetermination rules give employee representatives half the seats on the supervisory board that must approve any overhaul. Management can't just impose this; they need the people losing their jobs to help wave it through.

Make no mistake: this is a huge shift. This is a company actively saying it will drive towards making less money, just hopefully more sustainably. It's a massive change in mentality for what was the world's biggest carmaker. And VW isn't the only one. BASF, Bosch, Continental more than a dozen other German manufacturers have closed one or more facilities over the last four years.

The arrogance that cost Germany its lead

Professor Manuel Vermeer, a consultant who helps German companies bridge the gap to Asia, has witnessed the shift in attitude firsthand. For the last 30 to 40 years, he says, German business leaders displayed "a lot of arrogance" toward Asian competitors. "They were laughing about Tesla ten years ago, and they were laughing about Chinese cars," he says. "Now things have shifted. They are either afraid or arrogant still and say, 'Oh, this should not have happened.'"

Vermeer is blunt about the consequences: "I'm not sure whether it's two or three years or maybe five years, but it might be a do-or-die situation—and then it would be die." He warns that BYD could take over Volkswagen within years, calling it "a very realistic scenario."

The complacency, he explains, stems from a deeply ingrained belief that German engineering is superior. "Look at us. Nobody can build a car like BMW," he says, paraphrasing the mindset. "The Japanese came and the Koreans came, but those were small cars, cheap cars. They didn't have the quality of an Audi or a Porsche. And somehow the Germans wouldn't believe the Chinese are able to do this."

But the Chinese watched and learned. German companies taught them how to build good cars through joint ventures in the 1980s. Now they're surpassing the teacher. "Many German managers have not understood that Chinese quality is fantastic," Vermeer says. "They have a different focus. It's not building a car and putting an iPad inside it's rather an iPad with four wheels."

The Chinese are coming

BYD is already establishing a plant in Europe, in Hungary. Battery companies like CATL are coming to Germany. And now, Vermeer says, "they are thinking of taking over our factories." If Volkswagen closes four plants, "the Chinese will be playing Monopoly and say, 'Okay, I'll buy it.' In the future, they might even buy the whole company."

Talks are already underway with Chinese EV maker Xpeng about taking over one of VW's factories in Europe. Audi, part of the Volkswagen Group, is building a new China-only brand based on a jointly developed digital EV platform. VW's software arm is working with China's Horizon Robotics on automated driving systems and AI chips for the Chinese market.

A warning for the future

Vermeer draws a parallel to India, where he fears Germany is repeating the same mistakes. "We are taking a lot of German companies to India, and basically the same things happened as we had them 20 years ago in China. Many Germans come there with the kind of arrogance, let's teach the Indians how to do business. And then they are shocked when you see that Indians actually are very good and sometimes even ahead of us."

The solution, he argues, is not decoupling but cooperation. "I don't see any chance for Europe if we decouple from China and we can't cooperate with the US because they don't want us," he says. "We should work together with Asian countries. We can learn from Vietnam, Indonesia, India. Working together, we can be strong in the future."

But he warns that Germans must accept difficult changes. "Maybe we have to cut back some of our luxury and our level of living," he says. "If we are not willing to maybe lower our standard of living or adjust faster, then we will have a huge problem."

A future with fewer jobs

The scale of the looming crisis is staggering. Vermeer predicts that "exporting will not be there" within five to eight years. "We will lose millions of jobs, not only 100,000, but millions." And for the next few years, he does not see "a very bright future for Germany."

Yet he remains optimistic in the long run. "The word crisis implies danger and there is a chance," he says, referencing the Chinese word for crisis. "Why not take this as a chance for Europe, that we have the possibility of working closer together with Asian countries and less with the US, because they're not reliable anymore?"

The question is whether Germany and Europe can shed their arrogance fast enough to adapt. As Vermeer notes, many leaders "still haven't really understood how bad the situation is." The clock is ticking.