Not only Volkswagen and Nissan, automakers world over are struggling after a rewarding pandemic

A few years ago, automakers were celebrating record profits as the pandemic caused new car shortages, allowing them to raise prices. Now, the industry is facing a harsh reality.

According to The Economic Times report, while Nissan, the Japanese automaker, is laying off 9,000 employees, Volkswagen is considering closing factories in Germany for the first time.

The CEO of Stellantis, the US and European automaker that owns Jeep, Peugeot, Fiat, and other brands, resigned after sales plummeted. Even luxury brands like BMW and Mercedes-Benz are struggling, added the report.

While each automaker has its own set of issues, there are common challenges: a costly and complex technological shift, political instability, rising protectionism, and the rise of fast-growing Chinese carmakers. These problems are raising concerns about the future of companies that provide crucial jobs across Western and Asian countries, reported The Economic Times.

Many of these issues have been looming for years but were less urgent during the pandemic, when automakers were able to raise prices amid semiconductor shortages and limited inventory. However, that period has ended, and the industry is back to its prepandemic state, with too many manufacturers competing for too few buyers.

As a result, car factories worldwide are producing far fewer vehicles than they were designed to make.

“When automakers don’t earn a decent return on their factories and machines, there is a massive effect on profitability,” The Economic Times quoted Simon Croom, a professor of supply chain management at the University of San Diego, as saying.

“The difference between profit and loss is a very fine line in the auto industry,” added Croom.

Workers are among the first to feel the pain in an industry that employs 9 million people worldwide, including 1 million in the US. More than 2 million Americans work in dealerships and related sectors.

Nissan, with factories in Mississippi and Tennessee, hasn’t specified where its 9,000 layoffs will take place. It follows Ford, which announced 4,000 job cuts, mainly in Britain and Germany, due to “unprecedented competitive, regulatory, and economic headwinds.”

Ford’s concerns include the rise of Chinese carmakers, who have rapidly expanded into global markets with high-quality cars at much lower prices. Brands like BYD, Chery, and SAIC are still largely restricted in the US and face tariffs in Europe, but they are gaining ground in Australia, Brazil, Chile, and Thailand, drawing buyers away from companies like Fiat, General Motors, and Toyota, reported The Economic Times.

Competition from China is “starting to hit the safe places that Western carmakers had,” The Economic Times report quoted Felipe Munoz, global analyst at JATO Dynamics, a research firm, as saying.

In China, the world’s largest car market, domestic manufacturers like BYD are outshining foreign brands with features like the Yangwang U8, a plug-in hybrid off-roader that can float for 30 minutes and rotate 360 degrees in place.

This rise of Chinese automakers has hit German carmakers hard. Volkswagen, which relies on China for one-third of its sales, saw a 10% drop in deliveries there in the first nine months of this year. BMW and Mercedes-Benz have also reported significant declines in China, impacting profits. US automakers are also feeling the pinch, with GM announcing a $5 billion loss as it restructures its unprofitable Chinese operations.

Companies slow to update aging models are struggling the most. Nissan, Stellantis, and even Tesla are facing stagnant sales, while others have faltered in producing appealing electric vehicles and developing essential software. Volkswagen, once a leader in electric vehicles, has seen disappointing sales, with its ID.4 SUV’s US sales halving in the third quarter, hindered by buggy software, according to the report, citing Kelley Blue Book.

“The Chinese are winning market share and the Germans are losing,” The Economic Times quoted Ferdinand Dudenhöffer, director of the Center for Automotive Research in Bochum, Germany, as saying.

“It’s not only the electric cars, it’s the software in the cars,” Dudenhöffer added.

Changing government policies are adding to carmakers’ challenges. In Germany, electric vehicle sales dropped sharply after the government, facing a budget crisis, abruptly removed financial incentives. In the US, President-elect Donald Trump and Congressional Republicans aim to repeal Biden-era tax credits designed to boost electric vehicle sales. These policy shifts jeopardise the hundreds of billions of dollars invested by GM, Hyundai-Kia, Volkswagen, and others in new factories and vehicles.

“The auto industry has had to dish out a lot of capital for an underwhelming EV market and one that may well change in the next six months,” Erin Keating, an executive analyst at Cox Automotive, a research firm, told The Economic Times.

Trump has threatened tariffs on imports from China, Mexico, and Canada, with China supplying crucial components for nearly all carmakers and Mexico serving as a key manufacturing hub for BMW, GM, Ford, Stellantis, Volkswagen, and others, shipping 2 million vehicles to the US this year.

Not all automakers are struggling. GM shares have risen over 40% this year, boosted by popular electric models like the Cadillac Lyriq and Chevrolet Equinox.

CEO Mary T. Barra said GM is close to making a profit on electric vehicles, unlike other US carmakers, excluding Tesla. However, GM recently paused its robotaxi development, raising doubts about its ability to compete with Tesla and Waymo in next-gen tech.

Toyota’s hybrid-focused strategy is also paying off, with many buyers opting for affordable hybrids over electric vehicles. However, Toyota risks falling behind if EV sales accelerate faster than expected, especially as EV prices drop and range improves. In China, over half of new cars sold are electric or plug-in hybrids, and prices for EVs are already lower than gasoline cars.

Carmakers like Stellantis are adapting. With CEO Carlos Tavares resigning, Stellantis has new electric models coming in 2025, including Jeeps, Ram pickups, and a Dodge Charger muscle car. The company is also working to rebuild ties with dealers who felt it was slow to reduce prices and offer incentives.

Market pressures will prompt carmakers to cooperate with one another more, for example, by sharing the costs of engine development, K Venkatesh Prasad, senior vice president of research at the Center for Automotive Research in Ann Arbor, Michigan, told The Economic Times.

“You’re seeing some of this already,” he said.

Nissan CEO Makoto Uchida said last month that the company would reduce the time it takes to develop a new vehicle by working more closely with its partners Renault, Mitsubishi and Honda.

Volkswagen is trying to solve its software problems by investing in Rivian, which makes electric pickups and SUVs in Illinois. Western carmakers are also making deals with Chinese automakers. Volkswagen will develop new models with Xpeng to sell in China. Last year, Stellantis bought a 20% stake in Leapmotor and has begun selling the Chinese company’s electric vehicles in Europe.

“If you can’t beat ’em,” Dudenhöffer said, “join ’em.”

With inputs from agencies