After a prolonged period of asphyctic growth, Germany’s GDP contracted by 0.2% in 2024, confirming the downward trend already reported the previous year (-0.3%). The causes of the setback for the now former ‘locomotive of Europe‘ are many, as reported by Vincenzo D’Arienzo in his analysis for our pages: above all, the massive unsuccessful investments in energy transition, estimated at between 1.8 and 6 trillion euro, the weight of migration policies and the now unsustainable cost of a mammoth welfare state.

The list of the giants of the German economy in deep crisis is a long one and, amidst massive job cuts, relocation and cost-cutting plans worth billions of euros and the closure of dozens of production plants, they now look like giants with feet of clay. Case studies include chemical titans such as BASF, whose share price recently plummeted on the stock exchange, or steelmakers such as ThyssenKrupp, which is preparing to cut 11,000 jobs in six years. The condition of hundreds of German companies suggests that the sharpest setback is yet to come, with the Bundesbank cutting its GDP growth forecast for 2025 from 1.1% to a feeble 0.2% last December.

It would be wrong, therefore, to take uncritically as read those simplistic and instrumental explanations that attribute the unfavourable economic situation solely to increases in energy and raw material prices, clumsily attempting to conceal the structural and chronic problems that afflict the Rhine model, of which Volkswagen, among many industrial groups, is one of the truest incarnations.

The most indebted listed company in the world

With debt already well in excess of 200 billion, the Wolfsburg giant is now the most indebted listed company in the world, with a deficit that is becoming less and less sustainable year by year due to falling sales figures(-2.3% of deliveries in 2024), plunging profits(-63% year-on-year in Q3 2024) and an already asphyxiated margin (3.6%) that is steadily declining. The recent agreement between trade unions and management, which envisages a downsizing of wages by between 4 and 6% and a massive reduction in vehicle production (-700,000 in Germany alone) to avert the closure of German plants, appears to be a desperate cry aimed only at postponing the inevitable need, between now and 2035, to drastically cut the workforce by around 35,000 in the brand’s motherland alone. All this in order to produce annual savings of around 1.5 billion in the immediate future, with the aim of reaching 4 billion as soon as possible, which would in any case be insufficient to restore the company’s accounts.

“Fiat in Turin alone has one hundred and twenty thousand workers, fifteen thousand industries linked to this destiny”.

Thus a pioneering Lucio Dalla, back in 1976, reflected on the implications of the automotive supply chain in his imaginary ‘Intervista con l’Avvocato’. The temporary rescue of the Volkswagen plants, likewise, does not guarantee the survival of an industry whose fate is closely linked to that of the Wolfsburg giant and which appears to be increasingly agonising, with repercussions that go beyond the borders of Germany alone. Among the most serious situations is the notorious case of Schaeffler, a multinational that operates as a supplier to Volkswagen and employs 120,000 employees, of whom 4,700 are now forced to be laid off, with the simultaneous closure of two factories in Europe, including, probably, the Italian Momo production site in the Novara area. Similarly, France’s Michelin has announced the closure of as many factories across the Alps by early 2026. The domino effect will also spread to giants such as Bosch, which has confirmed a cut of around 10,000 jobs, and Continental, the historic tyre brand, which will downsize around 30,000 employees in the coming years.

The causes of the decline

Having thus reviewed the most obvious effects of the decline of what remains the second largest car manufacturer globally, it remains only to identify the causes, including rigid governance, Asian competition, supply chain congestion and the now manifest inadequacy of the old Rhineland model of concerted and exacerbated labour unionisation. However, it would be impossible not to mention, first and foremost, the dieselgate scandal of 2015 – which, according to many, was the origin of the recessionary spiral. While constituting a serious fraud against consumers and European and US regulators, Volkswagen’s falsification of the real emission levels of its infamous TDI diesel engine is indicative of an increasing difficulty in meeting ever more stringent, numerous and ever-changing environmental requirements which, by requiring huge investments in research and development with no guarantee of results, result in higher car prices: a gigantic assist to Chinese competition and a defeat for European workers, increasingly victims of ineluctable processes of relocation to developing economies.

That the difficulties do not concern the Volkswagen group alone but the entire industry is demonstrated by the famous ‘Letter to Europe‘ published last March by Luca De Meo, CEO of Renault: more than an exhortation, a cry for help on behalf of the entire industry, which puts in the main dock precisely the European Union’s ideological and unsustainable obsession with total decarbonisation by 2035, for which European carmakers have already earmarked the ‘monstrous’ figure of €252 billion over the period 2022-2024. All of this, exacerbated by the entry into force, on average, of 8-10 new European regulations every year (with related threats of sanctions in the event of non-compliance, already quantified at 1.5 billion for 2025 for Volkswagen alone) and by a framework adverse to business and aptly illustrated by De Meo with a maxim to be carved in gold: “China supports industry, the United States incentivises, Europe regulates”.

The French group CEO’s recommendations include urging European institutions to adopt a technology-neutral approach. Returning to the Volkswagen case, in fact, it would be ungenerous not to consider the impact of the green extremism adopted by the EU on the company’s performance, directing even those investment choices that have turned out to be completely unsuccessful – made perhaps to do greenwashing and clean up its image from the dieselgate scandal. Notorious, for example, is the carmaker’s involvement in Northvolt, a Swedish manufacturer of lithium-ion automotive batteries, which we discussed in this analysis. Last November, the Scandinavian start-up declared bankruptcy in the United States after accumulating more than 5 billion in debt, despite substantial funding from the European Investment Bank. Volkswagen, through an investment of over 13 billion, was its majority shareholder. The fear now is that a similar fate may befall the Wolfsburg giant’s generous contribution to Rivian, the American electric vehicle manufacturer with which Volkswagen has signed a joint venture worth around $6 billion. In view of the mood, the Cato Institute wondered last October whether the company would stay alive long enough to spend all the subsidies received from the states of Michigan, Kentucky and California. Impossible, on the other hand, to opt for more profitable and truly forward-looking investments in a context of diesel demonisation and an ideological crusade against the endothermic.

On closer inspection, the Volkswagen case offers a unique perspective on the many overlapping reasons for the decline not only of the automotive industry, but of the entire German and European industry, of whose economic suicide we have already formulated a diagnosis. “The Rise and Decline of Nations” by Mancur Olson, one of the greatest theorists of public choice and the workings of interest groups (of which Brussels seems to have become the world capital), bears an eloquent subtitle: “economic growth, stagflation and social rigidity“: an incredibly faithful identikit of all the ills afflicting the Old Continent, for which a drastic change of course is increasingly necessary.