As European Commission President Ursula von der Leyen convenes a “strategic dialogue” with key automotive industry players, the sector faces a perfect storm of challenges, according to Euractiv.
From plummeting demand and job cuts to the rocky transition to electric vehicles (EVs), European carmakers face immense pressure.
Weak demand
The core issue plaguing Europe’s car industry is weak demand. In 2024, two million fewer cars were produced compared to pre-pandemic levels, as rising living costs and high interest rates make new cars unaffordable for many Europeans.
As early as last year, Renault CEO Luca de Meo warned of a possible decline in purchasing power.
The European middle class is losing purchasing power.
The decline in affordability is particularly acute for EVs, whose prices have risen despite falling battery costs. Compounding the problem is the “local for local” trend, where carmakers like German brands increasingly produce vehicles in their target markets, such as the US, rather than in Europe.
Job losses and factory closures
Fewer cars produced in Europe mean fewer jobs. In 2024 alone, 88,000 job cuts were announced, including Volkswagen’s plan to reduce its workforce by 35,000 by 2030. While VW aims to avoid layoffs by relying on retirements, the industry’s ageing workforce underscores a broader issue of overcapacity.
Meanwhile, critics like William Todts of Transport & Environment argue that record profits in recent years undermine claims of a crisis, attributing gains to delayed electrification investments and cost-cutting measures, including lower wages.
The shift to EVs exacerbates job losses, as electric vehicles require fewer assembly workers and render entire supply chains for internal combustion engine parts obsolete. Unions are calling for a moratorium on factory closures and forced redundancies to ensure negotiated solutions for affected workers.
Electric shift off-track
The transition to electric mobility remains a contentious issue. While there is consensus that EVs and fuel cells will dominate the future, sales figures fall far short of targets.
Carmakers blame weak consumer confidence, citing a lack of charging infrastructure and the reliance on purchase subsidies. In Germany, the abrupt end of EV incentives led to a sharp drop in demand.
German Chancellor Olaf Scholz has urged the EU to implement a bloc-wide subsidy scheme, whereas Transport & Environment criticises carmakers for focusing on premium EV models, driving up prices.
Carmakers argue they are already selling EVs at a loss and face looming fines for missing CO2 targets. The European Automobile Manufacturers’ Association (ACEA) is pushing for flexibility in enforcement, a stance supported by Germany, France, Italy, and Czechia. The European Commission’s recent Competitiveness Compass hints at potential compromises, such as averaging targets over several years.
Call for action
Trade unions sympathise with the industry’s struggles, noting the lack of demand for EVs undermines fleet renewal goals. Judith Kirton-Darling, general secretary of the European trade Union federation IndustriAll, stressed the urgency of EU measures to boost EV adoption but warned that current austerity policies contradict these efforts.
As Europe’s car industry navigates this crisis, the path forward hinges on balancing competitiveness, workforce protection, and the ambitious transition to electric mobility. The outcome of von der Leyen’s strategic dialogue could shape the sector’s future for decades to come.
