Germany's crisis-hit car industry is the key to its rearmament

Telegraph

4 hours ago

Once the pride of the nation, Germany's car industry is reeling from an annus horribilis of poor sales, job losses and the threat of unprecedented factory closures.
But defence firms have found a silver lining in the decline of the 'auto' trade: rehiring skilled workers to build equipment for a new German army that may soon have to defend Europe from Russia.
Sources in the European defence industry, which will play a critical role in German rearmament, say they are eager to snap up engineers who have been let go by car companies so they can be put to work producing tanks and infantry fighting vehicles.
Discussions are also being held in Berlin about repurposing car factories to produce military equipment.
'Let's put it this way: there's a similarity in the jobs, which means teaching an expert to weld vehicles other than cars takes less time than [training] a new person,' said a defence industry source. 'Thus, job offers usually work quite well for those who left the car industry.'
It comes as Friedrich Merz, the German chancellor, seeks to turn his country into a major European security power, after decades of Berlin taking a back seat on geopolitical issues.
Mr Merz, the centre-Right Christian Democrats (CDU) leader, has vowed to increase German defence spending to 5 per cent of GDP and transform the Bundeswehr, the German armed forces, into the 'strongest conventional army in Europe'.
The CDU chief has created a special €500 billion (£430 billion) fund to rebuild Germany's crumbling infrastructure, a key requirement for the rapid transit of Nato troops and tanks to its eastern flank.
His coalition government is also mulling a possible return to conscription, and last month unveiled the deployment of a new brigade of soldiers in Lithuania to defend the border with Russia – the first permanent military deployment by Germany since the Second World War.
The dramatic shift in German defence policy, known as the 'Zeitenwende' or turning of the times, has created unprecedented opportunities for the German arms industry, which used to be a pariah in the country due to its Nazi past.
At the same time, years of economic stagnation, Donald Trump's tariff war, poor electric car sales and fierce competition from China have all wrought havoc on the once mighty German car industry.
A recent study by the Institute for Economic Research (Ifo) said the German car industry is facing its worst slump since the pandemic, with two fifths of businesses struggling with a shortage in orders.
'Intensifying competition, especially from outside Europe, seems to be increasingly taking its toll on the German automotive industry. The crisis in the German car industry is continuing,' the Ifo said.
Another study by EY, an audit firm, found that the German car industry suffered 19,000 job losses in 2024 and now only employs around 760,000 people in Germany, the lowest figure since 2013.
But Mr Merz's rearmament policy could come to the rescue.
Rafael Loss, a German security expert at the European Council on Foreign Relations, said discussions were under way to convert German car factories, which might otherwise have closed down, so they can be used to build weapons, such as one Audi factory in Brussels.
Volkswagen, which is Europe's biggest carmaker but losing sales to China, is also understood to be looking for alternative uses for its factories in Dresden and Osnabrück.
'In cases where you have a car factory that already has skilled workers and is equipped for production of heavy machinery, that is one of the stronger arguments for the defence industry getting involved to prevent job losses,' he said.
Mr Loss added that electricians could also have a valuable role to play in developing military technology that has similar design features to civilian cars.
'This could be applied to micro-electronics, the sort of electronic devices you see in automated cars such as proximity sensors for parking,' he said. 'They are not too different from the sensors being used in military vehicles.'
Germany's 'Zeitenwende' policy began under Olaf Scholz, the previous chancellor, who announced the concept in a major speech in 2022 responding to Vladimir Putin's illegal and full-scale invasion of Ukraine.
He vowed that Germany would no longer be a bystander on issues of European security, as he created a €100 billion special fund for the Bundeswehr, in addition to giving billions of euros in aid to Ukraine.
Mr Scholz was initially reluctant to provide German military support, due to fears of angering Putin, but eventually sent tanks, infantry fighting vehicles, air defence systems and huge quantities of ammunition to Kyiv.
His successor, Mr Merz, wants to take German support even further, having swept to victory in elections last February and formed a coalition propped up by Mr Scholz's Social Democrats. 'Germany is back,' he has declared.
Now there is speculation as to whether Mr Merz will finally agree to send powerful long-range Taurus missiles to Ukraine, a step that the government of Mr Scholz always maintained was a step too far that would drag Berlin into open conflict with Moscow.
Mr Merz's government maintains a policy of secrecy on the nature of arms supplies to Ukraine, which it says is to keep Moscow guessing, although critics wonder if it really means that he has developed cold feet about the Taurus system.
The coalition is also hampered by doveish figures in the Social Democrats, who hold many of the same views about Russia as their former leader Mr Scholz.
At the same time, the rise of the Kremlin-friendly far-Right Alternative for Germany (AfD) party – which came second place in the last election – is putting pressure on Mr Merz to temper his actions against Russia.
Some German officials have been slightly taken aback by the highly positive response to Mr Merz's rearmament policy, fearing that expectations have been set too high for his government.
'We know expectations in Europe are high, and we view this defence reform as an important and necessary step,' one source said.
'But buying tanks, building tanks, this is not something that Germans are enthusiastic about,' they added, citing Germany's previous and far more infamous attempt to build the biggest army in Europe.