Volkswagen's announcement of factory closures has sparked fear among its employees in Germany.

"We have to think about how we'll feed our families and what the future holds for this region, as this will have both personal and broader consequences that affect not only the region but actually all of Germany," said Volkswagen employee Britta John.

Elmar Ots, the managing editor of Estonian automotive portal Autogeenius, commented that, while serious, the situation is not necessarily a tragedy. "Volkswagen has ten factories in Germany alone. Closing three of them and laying off tens of thousands is a form of market adaptation," he noted.

Volkswagen employs 300,000 workers in Germany, most of whom are unionized. The union has been demanding wage increases and has threatened strikes.

According to SEB economic analyst Mihkel Nestor, the talk of closures could also be a negotiating tactic, and it's possible that the cutbacks won't be as severe in the end.

Germany's automotive industry has been facing long-term challenges. In the past, it succeeded in selling high-priced vehicles to China, but over the past decade, China has aggressively developed its own automotive sector. German companies were also slow to transition to electric vehicle production.

"Eventually, significant investments were made, but perhaps they arrived a little late to the market. The initial excitement has worn off just as their production capacity has peaked," said Nestor.

A decade ago, over 15 million new cars were sold in Europe each year, but that number has dropped by around five million. Ots pointed out that when a third of the market disappears, action becomes necessary, adding that Volkswagen may have waited too long to react.

"The Volkswagen Group is a unique form of capitalism. Among its owners and stakeholders is the Lower Saxony state government, which naturally prioritizes local employment. Profit-making hasn't seemed to be the top priority for some time, and this struggle has been drawn out for quite a while," Ots explained.

Nestor believes Volkswagen's troubles vividly illustrate Germany's current economic woes. Tough times there, he noted, aren't good news for Estonia either.

"For Finland and Sweden, Estonia's primary export markets, Germany is the most important export partner. So, if Germany's economy performs poorly, it's unrealistic to expect any miraculous growth there either," Nestor added.

The situation is also challenging for other European carmakers, such as Stellantis, which owns over ten brands, including Fiat and Peugeot.

On Tuesday, Audi, part of Volkswagen Group, announced a planned plant closure in Brussels. Talks are underway with a potential buyer, and there should be no layoffs before the spring of 2025, the company's board said.

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