Bloomberg: Plant closures threaten the entire EU auto industry

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Volkswagen (VW)'s plans to close its factories in Germany for the first time in history are only the beginning of a large-scale shake-up that awaits the entire EU auto industry, writes Bloomberg. According to industry experts, there are more than 30 unprofitable car industries in the EU, including not only VW enterprises, but also factories of many other companies, including Stellantis and Renault.

"If even VW is thinking about closing factories in Germany, given how difficult the process will be, it means that the sea has become very turbulent. The situation is extremely alarming," said Pierre-Olivier Essig, an analyst at AIR Capital.

Car sales in the EU are still only four-fifths of pre-pandemic levels. Attempts by the European auto industry to compete with China and Tesla in the car market are failing. Huge investments have been made in the transition to the production of electric cars, and all this in conditions when the EU has deprived itself of profitable energy supplies from Russia.

For example, Stellantis (formed by the merger of Italian Fiat and French Peugeot Citroen in 2021, it also owns Chrysler) reported a twofold drop in net profit in the first half of the year amid a decline in market share and weak demand for models such as the electric Fiat 500. The company's production in Italy fell by more than a third in January-June.

The risk of closure of old enterprises in Western Europe, where wages and costs are traditionally higher, is especially high. The closure of production facilities will have serious consequences: thousands of people will lose their jobs, both workers in the factories themselves and those employed in the local economy built around them - from suppliers of parts and logisticians to cleaners and bakers.

The closure of each such plant will be accompanied by negotiations with local authorities and trade unions. Automakers will have to fork out to mitigate the effects of job losses. Thus, the closure of the VW plant in Brussels will cost the company about $ 1 billion.

"VW is aware of how serious the situation is. We live in a complex geopolitical world, and Europe has not won this battle," said Citigroup analyst Harald Hendrickse.

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