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Home » Business » Why the crisis in the German automotive industry puts Italian production at risk

Why the crisis in the German automotive industry puts Italian production at risk

The two historic trading partners risk being engulfed in the same downward spiral. Green transformation scares industry, as do the risks of production relocation

Noemi Morucci by Noemi Morucci
31 October 2024
in Business
Employees load and unload Volkswagen cars at the plant's premises in Zwickau, eastern Germany on October 28, 2024, after auto giant Volkswagen announced plans to close at least three factories in Germany and slash tens of thousands of jobs as part of drastic cost-savings drive. The plan laid out by management, which affects the namesake VW brand, also includes a 10-percent pay cut for all staff, the company's powerful works council said in an update to staff. (Photo by JENS SCHLUETER / AFP)

Employees load and unload Volkswagen cars at the plant's premises in Zwickau, eastern Germany on October 28, 2024, after auto giant Volkswagen announced plans to close at least three factories in Germany and slash tens of thousands of jobs as part of drastic cost-savings drive. The plan laid out by management, which affects the namesake VW brand, also includes a 10-percent pay cut for all staff, the company's powerful works council said in an update to staff. (Photo by JENS SCHLUETER / AFP)

Brussels –Italy and Germany historically go hand in hand as trading partners. In 2023, the second-highest trade value ever was recorded, confirming Germany’s top position in trade with Italy.

Meanwhile, the crisis in Germany’s automotive sector is not slowing, with Volkswagen cutting non-profitable divisions in Germany and Belgium, decreasing production and exports, and EU tariffs on China to avoid being crushed by sales of electric cars from Beijing. In this context, Italy risks suffering a significant shock wave if the automotive sector in Germany enters a downward spiral.

In 2023, according to data from the Italian-German Chamber of Commerce (AHK Italien), trade in the auto sector grew, with increases in imports and exports. “The data demonstrate the structural nature of German-Italian relations despite the context of the German slowdown,” said the Chairwoman of AHK Italien, Monica Poggio.

The automotive supply chain accounted for 25.76 billion euros, of which Italy’s share of component exports to Germany was 20.5 percent, according to data from Anfia (National Association of Automotive Industry Supply Chain), with an economic value of 5.2 billion euros. For imports, Germany still ranks first as Italy’s partner (23.6 percent of the total).

“The crisis in demand for motor vehicles in Europe and Italy, rising production costs, and slowing investment in new mobility technologies are setting the stage for a possible worsening of the scenario,” warns Marco Stella, President of Anfia Components Group. “In the first half of 2024, an additional 32,000 job cuts were announced, exceeding the 29,000 in the second half of 2020. The components industry is also under pressure in Italy,” Stella said, speaking about jobs. He also noted the perplexity of supply chain operators about the cuts to the Automotive Fund that the Italian government plans.

2024 looks to be a setback year for various economic indicators, starting with turnover, according to the Observatory on Italian Automotive Components and Mobility Services 2024. It is clear that in the EU, like in Italy, we must consider policy goals, such as climate neutrality. Italy has prioritized discussions on stopping combustion engines by 2035 to bring to the EU Council, although reactions have not been particularly welcoming.

The market is evolving, and so are the rules of production. Even in Italy, there is a shift toward producing components for electric and automated guided vehicles. As in Germany, the problem is that the market is not ready to absorb the new products. Volkswagen’s choices may mark a challenging point from which to restart, especially considering the prospect of relocating production to non-EU countries.

Losing market share for vehicle and component exports would be a substantial blow for Italy. The study by ICE (ICE Report – Italy in the International Economy 2023-2024) also confirms the tough outlook for the sector: “Weak prospects are also emerging for transport-related sectors, starting with automotive, characterized by a physiological settling on the high levels reached after the strong growth of the 2022-23 biennium.” Great attention to the epochal change for the sector with decarbonization and to the difficulties of the debate in the EU, which, for ICE, will make “more uncertain the timing and manner in which the green transformation will materialize in the transportation world.”

Prometeia notes that we are “still far from the 2035 target.” It is clear that there is a lack of incentive policies, which is why Germany is not investing in the electric car sector, and there is “a reversal of the trend, with a reduction in the share of electric cars sold in total.”

Italy is far behind the European average for electric vehicles, and without the German pull, risks having even less rosy prospects in future years.

English version by the Translation Service of Withub
Tags: automotivecrisigermanyloss

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