Following rounds of layoffs, multinational auto companies have resorted to factory closures to further slash expenses and bolster cost savings. However, amidst the overarching transformation and upgradation of the global automotive industry, merely reducing costs and enhancing efficiency might prove inadequate.

Multinational auto companies appear to be grappling with a surge of "factory closures." On February 28, Audi's Brussels factory officially shut down, marking the end of a 76-year-old facility that once played a pivotal role in Audi's electrification transition. Shortly thereafter, Michelin, a global tire giant, announced an agreement with the unions of its Chollet and Valence factories in France regarding severance pay, planning to close these two historic tire factories by the beginning of 2026 at the latest. Earlier this year, Continental also disclosed plans to shutter five factories in Germany to address challenges in its tire business. Although Volkswagen's widely discussed intention to close factories in Germany culminated in production cuts rather than closures, coupled with Honda's announcement last year to close two factories in China, Subaru and Suzuki's plans to shut down factories in Thailand, and Stellantis' temporary closure of some assembly and engine factories in Italy, an increasing number of multinational auto companies are adopting factory closures to curtail expenses and enhance cost savings. Nevertheless, against the backdrop of the global automotive industry's comprehensive transformation and upgradation, merely reducing costs and increasing efficiency might not suffice.

The end of a Belgian automotive industry icon

When Audi's Brussels factory officially closed, it wasn't just the over 3,000 local employees who lost their jobs who felt sorrow and regret.

Founded in 1948, the Audi Brussels factory boasts a 76-year history. It's not only a participant and witness to the evolution of the Belgian automotive industry but also Audi's inaugural electric vehicle factory. Since its transformation to electric vehicle production in 2018, it was deemed the starting point for the company's electrification shift. However, due to issues such as high prices and insufficient charging infrastructure, European consumers have been slow to embrace electric vehicles, leading to low sales of the Audi Q8 e-tron manufactured at this factory. Coupled with high operational costs, the factory struggled to maintain profitability due to high logistics and production expenses. As a result, the factory's production lines have been idle since September last year, initially due to worker strikes and later due to a shortage of parts and components. Related suppliers were also disgruntled as the factory ceased production prematurely and canceled orders.

In search of a resolution, the Volkswagen Group made numerous attempts. Earlier rumors suggested that Audi was seeking new investors for the factory, with Chinese automaker NIO being a potential candidate, but this news was subsequently denied by NIO. In October 2024, Audi's Chief Operating Officer Gerd Walker stated that none of the 26 companies and potential investors interested in the factory had presented a 'viable and sustainable vision' for its future. In November 2024, a Volkswagen Group spokesperson revealed that the company had failed to find a buyer for its Audi factory in Brussels, potentially leading to its closure. Finally, in December 2024, Audi officially announced that the Brussels factory would cease production on February 28, 2025.

The local government was equally disheartened. During the heyday of the Belgian automotive industry, there were over 200 car manufacturing plants, and about 20% of the country's population was engaged in jobs related to automobile manufacturing. However, starting with the cessation of Volkswagen Passat production at the Brussels factory in 1997, several automakers, including General Motors and Ford, have shut down their manufacturing plants in Belgium. From 2022 to 2024, Belgium's overall industrial output declined for three consecutive years. With the closure of the Audi factory, Belgium is left with only the Volvo Gent factory still operational, which can be considered the sole large-scale automobile manufacturing plant in the country.

The European auto industry grapples with the 'pain of transformation'

Belgium's current situation may serve as a microcosm of the European automotive industry.

On the eve of Christmas 2024, after marathon negotiations with unions spanning over three months, the Volkswagen Group finally agreed to keep its 10 factories in Germany operational and restore employment security agreements until 2030. Of course, the price was a business reform that included layoffs of 35,000 employees and a reduction in capacity by 700,000 vehicles in Germany.

Previously, Volkswagen management had announced plans to close three of its 10 factories in Germany, which immediately sparked fierce opposition from local employees and the German government. Not only did large-scale strikes and demonstrations erupt, but German Chancellor Olaf Scholz also publicly stated that Volkswagen's plan to close several factories in Germany was 'incorrect.' Fortunately, after prolonged negotiations, Volkswagen ultimately replaced factory closures with significant layoffs and production cuts.

However, Volkswagen isn't the only European automotive group determined to close factories in its home market. For instance, Michelin, as mentioned earlier, plans to shut down its passenger car and light truck tire factory in Chollet and its metal-reinforced products division in Valence, in addition to two factories in Germany, and phase out certain products at its Hamburg factory. ZF Group also recently unveiled plans to reduce its workforce in Germany by 11,000 to 14,000 employees by the end of 2028, while integrating or closing some factories. In February this year, Stellantis confirmed to British media that its Luton van factory near London would close in the second quarter of 2025. In November 2024, some of its assembly and engine factories in Italy were already temporarily closed. Last November, Germany's Schaeffler Group announced plans to lay off approximately 4,700 employees in Europe and close two factories due to the sluggish European auto industry dragging down sales of its components. Moreover, some multinational auto companies have also pressed the 'pause button' on their capacity expansion plans in Europe. On February 23 this year, BMW Group announced the suspension of a £600 million investment plan for its MINI car assembly plant on the outskirts of Oxford.

As highlighted by European automotive industry experts, factors such as sluggish economic growth, high energy prices, decreased supply chain stability, and rising geopolitical risks have contributed to the current challenges faced by the European automotive industry. This is evident from the recent wave of factory closures. Compared to previous large-scale layoffs, factory closures require even greater courage, as they signify the loss of numerous investments and fixed equipment constructions. Many automakers would never resort to this 'last resort' unless absolutely necessary.

Some analysts assert that, on one hand, high inflation and economic weakness in Europe have severely weakened consumers' purchasing power, leading to sluggish car sales growth. The persistent decline in the traditional gasoline vehicle market has also intensified corporate profit pressure. On the other hand, although the transition to electric vehicles is viewed as the future direction of development, high R&D investment and fierce market competition have made it challenging for many companies to achieve profitability swiftly. Furthermore, global supply chain issues and fluctuations in raw material prices have kept automakers' costs high. Additionally, slow charging infrastructure development and insufficient consumer confidence in Europe have suppressed market demand. All these factors have caused many traditional automakers to face difficulties in technological transformation, leading to increased pressure on resource allocation.

'The European automotive industry is 'on the brink of death.' European Commission Vice-President Stéphane Sejourné said that to save the industry, 'The European Commission is no longer naive; it is prepared to protect and organize the automotive supply chain to give it a chance to enhance its competitiveness.' Clemens Fuest, President of the German think tank Ifo Institute for Economic Research, told the media that the transition to electrification implies that Germany's automotive industry will shrink, a structural change that must be adapted to. In their opinion, although the layoffs and factory closures chosen by many multinational auto companies in Europe will bring certain negative impacts, they are also the necessary cost of adapting to industry changes and the 'pain' that must be endured during the transformation process.

Global auto industry faces challenges

In fact, it's not just European auto companies that have been compelled to close factories due to the unprecedented changes facing the automotive industry.

In February this year, SAIC-GM (Shenyang) Beisheng Automobile Co., Ltd., one of SAIC-GM's four bases in China, was rumored to be closing soon, a news that was subsequently confirmed by officials. An insider from SAIC-GM told the media that the company's primary task now is to actively promote business restructuring. Based on new corporate strategies and product spectrum plans, the company will deeply integrate resources within the national production system, plan a more efficient capacity layout, improve operational efficiency, and ensure the company's long-term and stable development. In November 2024, Ford Motor Company announced plans to lay off 4,000 employees in Europe by the end of 2027 due to poor operating performance and slowing demand for electric vehicles. One of its factories in the German state of Saarland is scheduled to close in 2025. In July 2024, Honda announced the closure of one of its joint venture factories in Guangzhou in October and the cessation of production at another factory in Wuhan, Hubei Province, starting in November of that year. In June 2024, Japan's Subaru and Suzuki successively announced plans to shut down their factories in Thailand, with the former ceasing production in Thailand by the end of that year and the latter planning to close by the end of this year.

The direct reasons for the closure of factories by various automakers vary. Some are due to sales growth falling short of expectations, others are to promote business restructuring, and still others are due to strategic shifts in capacity. However, ultimately, it's due to the immense operational pressure they face and the inability to afford the funds needed to sustain the factory's continued operation. For example, Audi's parent company, the Volkswagen Group, witnessed a significant decline in overall profits in 2024, with operating profit falling from 22.5 billion euros in the previous year to 19.1 billion euros, a year-on-year decline of 15%, and profit margins dropping from 7% in the same period last year to 5.9%. Volkswagen Group attributed the decline in operating profit primarily to a substantial increase in fixed costs, including special expenses amounting to a net of 2.6 billion euros, primarily for internal corporate restructuring. In comparison, Stellantis' financial report was even less 'impressive.' In 2024, the group's annual net revenue was 156.9 billion euros, down 17% year-on-year; net profit was 5.5 billion euros, down 70% year-on-year; and adjusted operating profit was 8.6 billion euros, down 64% year-on-year.

Industry insiders bluntly stated that the reason why these multinational auto companies, which must reduce costs and increase efficiency through factory closures, are under such immense operational pressure is that most of them have not been swift or decisive enough in facing the transformation towards the 'new four modernizations,' leading to poor performance in the Chinese market, which originally occupied a significant position in the group's revenue, and dragging down the group's global performance. Worryingly, to protect profit levels, many multinational auto companies have even slowed down their electrification transformation and instead chosen to increase the launch of gasoline and hybrid vehicles.

Of course, in addition to the impact of the Chinese market, changes in the global economic situation, adjustments to policies and regulations, and shifts in consumer demand also profoundly affect the profit performance of these multinational auto companies. For example, the 'tariff stick' recently raised by the United States has made the already struggling economies of many European countries 'even worse,' with important industries such as steel and automobiles bearing the brunt. On one hand, the impact of US tariff measures on the European economy encompasses fluctuations in multiple areas such as trade, stock markets, and foreign exchange markets. On the other hand, tariff policies will further prompt some companies to relocate production lines from the European continent to the United States, exacerbating the outflow of important European industries and becoming a catalyst for Europe's 'deindustrialization.'

China remains a vital component

In response to current situational changes, many multinational auto companies are actively adjusting their global development strategies, and it's noteworthy that China continues to be a crucial part of these strategies.

To forge ahead together, several entities have deepened their partnerships with Chinese counterparts. On March 17, a strategic cooperation agreement was inked in Germany between China FAW and the Volkswagen Group. The accord stipulates that, commencing in 2026, FAW-Volkswagen and the Jetta brands will introduce an array of 11 new models tailored exclusively for the Chinese market, encompassing six pure electric vehicles, two plug-in hybrids, two extended-range models, and a single gasoline-powered vehicle. Last year, Renault and Geely collaboratively launched HORSE Powertrain Company, aiming to consolidate their powertrain operations. Renault unveiled its ambition to introduce Chinese electric vehicle R&D technology to the global stage. Luca De Meo, CEO of the Renault Group, emphasized, "Two to three decades ago, we fostered mutually beneficial growth with the Chinese market through investments, localized production, and technological collaboration. Today, we must replicate these strategies, harnessing the synergy between European and Chinese markets to attract Chinese manufacturers' investments in pivotal sectors, thereby catalyzing the transformation of the European supply chain and bolstering the competitiveness of the electric vehicle value chain."

Furthermore, several companies have established 'technology R&D hubs' in China to bolster their competitiveness within the domestic market. On February 5, 2024, Toyota announced its collaboration with the Shanghai Municipal Government to jointly champion green and low-carbon development in Chinese society. The decision was made to set up a wholly-owned subsidiary in Jinshan District, Shanghai, dedicated to the R&D and production of Lexus pure electric vehicles and batteries, with operations anticipated to commence in 2027.

Other entities have elected to position China as a vital export base. Jim Farley, President and CEO of Ford Motor Company, asserted, "To achieve greater triumphs in international markets, including ASEAN, South Africa, Australia, and the Middle East, we must capitalize on Ford China's burgeoning export business to further elevate the Ford brand's competitiveness in these markets." Kia follows a similar trajectory. In 2024, Yueda Kia's exports surged nearly twofold, from 86,000 to 170,000 vehicles, marking a 97.9% year-on-year increase, spanning regions such as Asia-Pacific, Southeast Asia, Africa, the Middle East, Central Asia, and Central and South America.

The global automotive industry's transformation fueled by the new technology wave continues to accelerate, subtly reshaping the world map. Layoffs and factory closures might merely be the prelude, with the restructuring set to persist. It is anticipated that only multinational auto companies that navigate the currents, actively confront challenges, and seize opportunities will emerge victorious in this round of competition, achieving sustainable long-term growth.

Note: This article originally appeared in the 'Hot Topics Tracking' section of the April 2025 issue of 'Auto Review' magazine. Stay tuned for more updates.

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