by Jonathan Packroff
As Commission President Ursula von der Leyen has invited key industry players on Thursday for a “strategic dialogue” on the future of the automotive sector, Euractiv takes a look at what is behind the current slump.
#1 Weak demand
The main problem of European carmakers comes down to one word: demand.
Two million fewer cars were produced in Europe in 2024 than before the COVID-19 pandemic, as Europeans are decreasingly able to afford a new car due to higher costs of living and high interest rates.
“The European middle class is losing purchasing power,” Luca de Meo, CEO of Renault, told reporters last year. But without middle-class families able to afford new cars, the industry suffers.
The lack of demand is particularly strong for electric cars, prices of which have actually risen over the last few years rather than decreased – as hoped – with falling battery costs and economies of scale.
The decline in European production is accelerated by a trend known as ’local for local’, which sees carmakers, such as German brands, increasingly produce their cars and source their supplies in the destination country of the cars. That is, by building cars for the US market in northern America.
“The business case for manufacturing in Europe needs to be improved,” Sigrid de Vries, director general of the EU’s main car industry lobby ACEA, told Euractiv.
#2 Job losses and factory closures
A lower number of cars produced in Europe also means fewer people are needed to build them.
A total of 88,000 job reductions have been announced over the course of 2024, according to data by Eurofound. This includes the announcement of Volkswagen, Europe’s largest carmaker, to cut 35,000 jobs by 2030, promising to do so without laying people off, however.
The workforce of the car industry is ageing, meaning that thousands of workers will retire anyway over the next few years.
In the case of Volkswagen, which builds nine million cars per year with 680,000 employees globally, while Japanese competitor Toyota builds a similar number with only 375,000 employees, even workers’ representatives have acknowledged the existence of an "overcapacity."
“There is very much a crisis, but it’s a crisis where the burden is falling off the shoulders of the workforce and on suppliers and smaller players down the value chain,” Judith Kirton-Darling, general secretary of the European trade Union federation IndustriAll, told Euractiv.
This comes after William Todts, executive director of NGO Transport & Environment, questioned the existence of a crisis in the automotive sector altogether, pointing at record profits of carmakers in recent years.
These profits have been made by “squeezing as much out of the internal combustion engine as possible,” including by delaying investments into electrification, Kirton-Darling said, as well as “squeezing their workforce," for instance, by paying lower wages.
The problem of job losses is accelerated by the shift towards electric vehicles, which need fewer people to assemble them and mean that entire value chains for parts of internal combustion engines disappear.
Alongside other unions, IndustriAll would like to see a “moratorium across Europe on the scrapping of industrial assets and forced redundancies to ensure that there’s space for negotiated solutions for every site and every worker.”
De Vries, however, disagrees. “I don’t recognise that industry would be just laying people off,” she said. There is “no lack of effort” by carmakers in trying to reskill and reemploy people, she added.
#3 Shift to electric cars off-track
The biggest point of contention is the shift to electric mobility.
While there is consensus “that the dominant technology will be electric or fuel cell,” as de Vries said, sales numbers are far from what is needed. “This transition is way harder than everybody even imagined or desired it to be,” she said.
“Carmakers are doing what they can” to increase the share of electric cars, de Vries said. However, the problem would be consumers not feeling confident about buying an electric car, primarily due to the lack of charging infrastructure.
“We’re not looking at a natural market demand for these vehicles,” she said, arguing that whenever purchase subsidies were taken away, demand for electric cars has plummeted.
This has happened in Germany, where the end of an electric car premium overnight – at the height of its budget crisis – has seen the share of EVs fall drastically.
Olaf Scholz, currently fighting for a second term as German chancellor, has asked the EU to step in, calling for an EU-wide purchase subsidy scheme.
Transport & Environment, however, blames carmakers for the increase in EV prices, as they have concentrated on more expensive premium models. This will change in 2025, the NGO hopes, as carmakers will hand out rebates on electric cars to meet their CO2 targets.
But “carmakers are already selling EVs at a loss,” de Vries said. “So you can work with your pricing, but you can only do that for so long,” she added.
ACEA is calling the EU to relieve carmakers from looming fines in case the CO2 targets are missed, a call supported by Scholz and other car countries, including France, Italy and Czechia.
In its Competitiveness Compass unveiled yesterday, the Commission pledges to "identify immediate solutions" to the looming fines by "looking at possible flexibilities" "without, however, lowering the overall ambition of the 2025 targets." This hints at a compromise which could see targets counted over several years, as proposed by German Economy Minister Robert Habeck.
Trade unions, meanwhile, voice sympathy for the carmakers’ difficulties: “If you haven’t got the demand pushing the shift in the fleet, then it’s very difficult to achieve,” said Kirton-Darling.
It was “urgent” for the EU to take measures to increase demand for electric cars, she said, but arguing that this was “in fundamental contradiction to the macroeconomic policy that Europe is pursuing at the moment, which is austerity.”
*first published in: Euractiv.com