Most articles about the automotive industry looks at particular manufacturers or the state of the market in particularly countries, as the lead story in the Wall Street Journal does today: American Consumers Have Had It With High Car Prices.
But if we step back just a tad, policymakers and economists appear not to have fully grasped the bigger picture, that the car biz around the world is in bad shape, and not likely to get better any time soon. The UK and Europe are suffering from newly-high energy prices due to sanctions on Russian energy, which have put them into near or actual recessions. On top of that, the Ukraine conflict and continuing hostilities to Russia have pushed them to go further and faster into Peak Neoliberalism with more social safety net cuts, further reducing standards of living. That pressures all consumer spending, including of cars.
Analysts and industry incumbents saw China as a major growth opportunity for Western, Japanese, and Korean automakers, but that has gone hard into reverse. Not only have foreign offerings lost share to domestic product, even at the once-Western-dominated high end, but overcapaticy among Chinese EV makers is so high that it has produced what was once called ruinous competition, leading Chinese officials to intervene and try to rationalize the sector.
I am not sure how demand in Latin America is holding up. But even if it were robust, it can’t offset the weaknesses in these three major markets.
The generally poor health of automakers matters. First, even though worker levels are set to fall on a secular basis due to ongoing increases in automation plus the continued gain in market share of fewer parts, hence easier to assemble electric vehicles, they are still flagship manufacturers and major employers. Second, the automobile industry drives GDP and employment via parts manufacture, dealer networks, auto financing and leasing, and repairs and servicing (if nothing else, oil and tire changes). Third, for most households in advanced economies, cars are essential. In the US, comparatively few cities have sufficiently good public transportation to make that a great option. Lower density areas similarly are not a happy match with ride share services. For the financially stressed, car payments are the last to go, since if push comes to shove, you can live in your vehicle.
Now to some fresh sightings, the aforementioned Wall Street Journal article plus two stories from the Financial Times on Volkswagen’s seriously bad prospects, and tsuris at Stellantis. Key sections from the Journal account:
Car buyers are downsizing, buying used vehicles, taking on longer car loans and holding out for deals….
For the U.S. auto industry, 2025 was supposed to be a banner year fueled by tax cuts and a deregulatory wave. Analysts predicted a third-straight annual sales increase as automakers, who had been hit hard by the coronavirus pandemic and semiconductor shortages, finally got their factories running full steam. Now forecasts predict muted or no growth for the year and more of the same in 2026…
But now auto tariffs, persistent inflation and a tighter job market have more Americans rethinking their biggest-ticket purchases. Meanwhile, the collapse of the U.S. electric-vehicle market—hastened by the end of the federal government’s $7,500 EV credit in September—has cost the industry hundreds of thousands of potential vehicle sales…..
Signs of strain are beginning to show up in the data. Cars are sitting longer on dealer lots. Dealers are piling on extra discounts to make sales. Lower-income borrowers are defaulting on car loans. Americans as a whole are spending less overall on vehicle purchases than they did a year ago…
That tension is unlikely to lead to dramatic price cuts or plummeting sales, analysts and economists say. That is because years of tight new-car supply means that used cars, even older ones, are historically pricey as well, and many car owners are reaching the limit of how long they can hold out for a new vehicle.
Erm, have they not heard of motorbikes, the transportation staple of poorer countries? Continuing:
And not all shoppers are suffering. A swath of the nation’s consumers have continued to amass wealth and are bolstering industry profits as they pay top dollar for trucks and SUVs…
Less price-conscious consumers have already purchased their cars and now he’s seeing more people who’ve held out for years because they are loath to take on higher car payments. “More customers just aren’t willing to pull the trigger,” he [Michael Sassano, who manages a Chevrolet dealership in New Rochelle, N.Y.] said. “They say, ‘Wow, I’m paying $500 a month now, I don’t want to pay $700’.”
The good news, he said: Business is up on the service side of the shop as people try to squeeze more life out of their cars.
This story does not acknowledge another issue, the poor quality of too many American-made cars. Reader resilc sends regular tidbits, this one of his latest. Sadly YouTube shorts don’t embed, but check out Ford built this $80k truck with scraps.
Recall that we wrote at the end of 2024 about the accelerating crisis at Nissan. That ties directly into the “too pricey US car” story above. Nissan had been a very important maker of modestly priced but solidly performing vehicles. That all went to hell after Renault bought them.
The Financial Times has been chronicling the increasingly desperate state of Volkswagen, with two stories in the last week: VW says it can halve EV development costs with ‘Made in China’ car on the 25th and Will Volkswagen’s radical revamp be enough? today.
We will largely skip over the Volkswagen China EV story. It describes how the German maker intends to beef up investment in China, to compete more effectively there, when that market is already glutted and Volkswagen is not presently competitive enough on cost versus quality. So it would seem to be a struggle to catch up, let alone have any prospect leapfrogging Chinese incumbents. And how much of a there would be there given the yet-to-be-resolved brutal price cuts? Nevertheless:
Volkswagen has said it can produce an electric vehicle entirely made in China for half the cost of doing so elsewhere, as the German automaker fights to reclaim its share in the world’s biggest market.
Europe’s largest carmaker said on Tuesday that, following a series of investments in the country, it could for the first time develop cars outside Germany, including testing and deploying new technologies such as assisted driving.
VW is preparing to release about 30 EV models in China over the next five years in a bet on localised research and development. The carmaker said that, compared with the 2023 production costs for EVs in Germany, the cost for some models in China had been reduced by as much as 50 per cent due to supply chain efficiencies, including battery procurement, shorter development periods and lower labour costs…
The carmaker initially described its strategy as “in China, for China”. However, the group is in discussions about increasing exports of Chinese-made cars as well as applying China breakthroughs throughout its global operations, said executives.
So the initial idea had been to build cars for China’s market, but someone must have worked out that that was barmycakes, so now the clever idea is some may also be exported.
From comments:
AeraMiamiVW will struggle and likely fail because of fierce competition from >100 Chinese EV companies. The better strategy is to buy an existing Chinese EV icon like NIO.
@keep calm and carry onIn reply to AeraMiamiMost of the >100 Chinese EV companies are going bust and VW is heading for a restructuring. The only 2 EV manufacturers actually making money selling EV’s are Xiaomi (probably) and Tesla. They don’t have 30 models – they have a handful.PS – NIO is a financial basket case btw.
Now to the newer piece at the pink paper, on Volkswagen’s restructuring plans, starting with how Volkswagen will cut 35,000 jobs in Germany by 2030:
Volkswagen is struggling to adjust to the rise of electric vehicles, big sales declines in China and lacklustre demand in Europe….
The crisis has spilled over to the carmaker’s premium marques, Porsche and Audi, which historically have driven high growth and rich profits. US President Donald Trump has imposed tariffs on imported cars.
These will cost Volkswagen up to €5bn this year alone, putting it among the hardest hit carmakers in the world…
Auto industry experts are now asking whether last year’s landmark cost-cutting plan will be enough…
Analysts polled by Reuters forecast that the group’s net profit will more than half to €5.2bn this year compared to last. Porsche, the maker of the iconic 911 rear-engined sports car, fell into a loss in the third quarter after writing off €1.8bn because of delays to new electric vehicle models.
Even if a forecast rebound materialises as expected, Volkswagen’s group profit in 2027 will still be 16 per cent below its post-pandemic peak in 2023….
Rival German carmakers BMW and Mercedes-Benz have also been hit hard by the downturn in China sales and the imposition of tariffs. But Volkswagen, the global symbol of German carmaking prowess, is more reliant on lower-margin mass market cars and employs a disproportionately large number of staff in Germany — two-fifths work there, even though only 19 per cent of its vehicles are manufactured domestically. Production costs in the country are among “the highest worldwide”, says [Helena] Wisbert [professor for automotive economics at the Ostfalia University of Applied Sciences in Wolfsburg].
Note the bind that Germany is in: its once vaunted workers, who by all accounts were once sufficiently productive so as to be still be competitive on a world basis, now part of high cost operations even for premium products. Admittedly this is not due just or even mainly to factory labor costs, which are only 3% to 5% of wholesale car costs. It’s also due to now high energy costs and older plants being less efficient.
One of the German/European responses to the self-harm done by the Russian sanctions is fever dreams of converting car plants to tank and armed vehicle making so as to hold the predatory Putin at bay. This idea is so crazy it is hard to know where to begin. First, experts have pointed out that this conversion would be no makeover but would be close to starting afresh, as in the existing plants would be of little value. Second, the high energy, labor, and other workplace safety costs would similarly result in Germany being a high-cost source, further blunting what is already expected to be an inadequate effort, were the Russian threat to be real. Third, the focus on tanks and vehicles is wildly out of date, as anyone who has been watching the advances in technique in Ukraine would know well. Near-total theater-of-combat surveillance and heavy use drones have made tanks and other means of massing forces obsolete. motorcycles have become more important in moving troops than armored carriers, and drones now deliver most supplies. As a result, Russia has been “seeping” infantrymen in very small groups through the (now many) weak spots in the line of contact, so as to attack from the rear.
To round out these updates, the Financial Times also provided an update on Stellanis today. From Stellantis car production in France set for 11% drop by 2028:
Production at Stellantis’ French factories is set to drop over the next three years, as the maker of Peugeot, Fiat and Jeep vehicles suffers a sharper manufacturing slowdown than European rivals.
The number of units being produced at the company’s five assembly factories in France is predicted to fall by 11 per cent between 2025 and 2028, according to trade union estimates based on presentations by Stellantis last week….
A report by McKinsey for automotive suppliers representative group Clepa on Thursday estimated production of light vehicles in Europe would fall 6 per cent to 8.9mn between 2024 and 2028.
According to the report, European car production in 2024 was more than 30 per cent below levels in 2017, and in that time Stellantis had the steepest drop in growth of any major automobile manufacturer on the continent.
And a comment on this article confirmed the basic conundrum: the Europeans (and Americans and Japanese and Koreans) will find it well nigh impossible to close the gap with China, at least in EVs, leaving them to fight it out over a shrunken ICE and not-that-large hybrid market:
AndrocydesA friend of mine recently bought a BYD. I didn’t drive it, but I did sit in it. It cost about £35,000 and frankly the quality of the interior and the features it had blew me away. A similar European made car would cost over £50,000.The European car industry is utterly doomed. It is will go the same way as the European textile industry.
Keep in mind that these developments are a tragedy not just for auto industry employees and the big ecosystem that depends on car manufacture, but is symptomatic of what is happening across all but the least developed economies. As Karl Polyani depicted in his landmark account, The Great Transformation, the operation of capitalism is destructive to the fabric of the societies in which it operates. This “progress” had been made tolerable only by reforms blunting, as opposed to reversing, that trajectory.
But are we reaching a point where this sort-of Hegelian process has hit an end state? Capitalism is a system in which most must sell their labor as a condition of survival. Political leaders, at least until Peak Neoliberalism, had recognized the importance of providing for enough employment, and better yet, with rising real wages, as a requirement for social and political stability.
That is being turned on its head. CEOs now celebrate making do with way fewer employees. The press touts the AI revolution and notes ite expected wipeout of white collar jobs, with no idea as to what they might do instead. There are only so many jobs in HVAC, after all. Political leaders wonder why birth rates continue to fall as precarity and job instability continue to rise. We pointed out even before that in a highly atomized society like the US, the response is more likely to take the form of random-seeming outbreaks of individual violence rather than organized protest. So prison jobs will also be a growth sector.
