Germany is dead. This is not good news for the EU's largest economy. The fact that automotive industry is collapsing means the entire economy is screwed. According to reports, this acocunts for 17% of the nation's GFP. The tentacles are very long.
I chrinicled the plight of the legacy automakers. They are a dying breed. At the top of the list, at least in Europe, is Volkswagon. The company is facing the prospect of being completely broke within 2 years. In other words, without a bailout, something the German government will have to seriously consider, bankruptcy is in the cards.
Of course, there is still time to diminish that possibility. It calls for cuts, something that is being contested. With automotive, there are three major entities: manufacturers, unions, and dealers.
This is why it is primed for disrution.
The Death of German Automotive
VW stuck a deal that keeps the German factories open. This was applauded by the union, even though it will result in 35K people losing their jobs. Unfortunately, this also means the other 75K or so will ultimately be out of work.
This is kicking the can down the road in the worst fashion. The company will suffer first, followed by the employees.
In response, VW is considering selling its factories to the Chinese. The closing of plants is bad enough, especially in Germany, but selling to the Chinese? That takes the proverbial cake.
It is also a move that will sink the Germans.
Simply put, they are uncompetitive. Their cash cow, the Chinese market, is basically gone as sales imploded. Why did this happen? The German brands are no longer competitive. Known for manufacturing and engineering excellense, traits that led it to being the leading merchatile economy in the world, is no longer sufficient.
When it comes to digitization, i.e. computers, the Germans are lagging. They cannot produce the software required to compete. This is true for most of the legacy automakers.
Chinese Invasion
The European car market, while struggling, is a beacon of hope. For the moment, the Chinese are effectively locked out of the country. The EU imposed stiff tariffs on vehicles coming in from China. This is the case regardless of whether there is a plant in the EU or not.
Tesla finds itself in this situation. It has a plant near Berlin that manufactures the Model Y. The Model 3, however, is imported. Because of the factory, Tesla pays the lowest rate.
If the Chinse buy the VW factories, the tariff on imports will be reduced. More importantly, it will give companies such as BYD production within the EU. As stated, the Germans cannot compete.
The demolition of legacy auto in China is a warning. It is a market that embraced EVs to a greater degree than the rest of the world. This caused the Americans, Europeans, and Japanese to get experience declining demand. It is safe to say the Chinese control their own market.
Other markets will see the Chinese spread like wildfire. For now, the tariffs are slowing things down. That said, it is only a matter of time before they get around this. Buying German auto plants could hasten the process.
The Chinese are not sitting still. Penetration into Europe is a step in the process. The ultimate goal will be to access the United States.
We are not going to see this genie put back in the bottle.