German auto industry finds itself in perfect storm

The German auto industry is in a state of upheaval. According to Bloomberg Intelligence, one in three auto factories isn’t running at full capacity; some are said to be operating at less than half of their production maximum. There are reports of upcoming mass layoffs and plant closures at Volkswagen. Permanent closure threatens Audi’s plant in Brussels, where production of a luxury electric SUV is slated to end. BMW and Mercedes-Benz have issued profit warnings and suppliers are resorting to layoffs as well.

A dip in sales is hurting carmakers, but that isn’t their biggest worry. The main problem is that they’re facing so many problems at once. The transition to electric driving, strong competition from China, Europe’s deteriorating competitive position and new emission requirements from the European Union are unleashing the perfect storm, as one lobby group put it. Major investments are needed to turn the tide, but the revenues from which they can be funded are lacking.