The specter of Detroit
Michigan was once the heart of America’s car industry. Today, it has about 280,000 fewer automaking jobs than it had in the 1950s. Detroit, the heart of the industry, lost nearly two-thirds of its population—more than 1.2 million people—and became a byword for post-industrial American decline, one it’s only now, decades later, beginning to shake off. As European carmakers have entered a period of prolonged crisis, the specter of Detroit is haunting the Continent.
In December, Volkswagen stopped production at its Dresden plant—the first time in the company’s 88-year history that it has closed a production site in Germany. The closure caps a turbulent year: in December 2024, after strikes and marathon negotiations, VW reached a deal with unions to cut 35,000 German jobs by 2030 and slash production capacity by 734,000 vehicles. “It was,” the IG Metall union spokesman Steffen Schmidt told the BBC, “a very big shock.”
But Volkswagen isn’t alone. The number of cars produced in Germany fell from 5.65 million in 2017 to 4.1 million in 2023, according to the International Organization of Motor Vehicle Manufacturers. German carmakers just had their worst quarter since the 2009 financial crisis. And between 2024 and 2025, the German automotive industry saw employment fall by 6.3 percent—the biggest slump of any major sector in the country.
The automotive industry is the crown jewel of European manufacturing, employing more than 13 million Europeans directly or indirectly.
Why is it struggling?
Sander Tordoir is the chief economist at the Centre for European Reform. Tordoir says European carmakers face two massive challenges: increasing competition from China, which has provided enormously generous subsidies to its own carmakers while rigging the exchange rate in their favor; and U.S. tariffs on European cars. On top of that, German carmakers made a series of costly mistakes—confident in their technological lead in combustion engines, they neglected to invest in innovative battery technologies. Now they’re trying to catch up, but they’re way behind their Chinese competitors.
Fundamentally, Tordoir says, the car industry is being crushed between a Chinese hammer and an American anvil. Unless Europe supports its carmakers with enough funding for capital-heavy innovation while protecting them from Chinese market distortions, it’s hard to see how the industry can survive in its current form. The stakes are massive. Europe has lost some of its most innovative companies to the United States. It lags behind the U.S. in productivity growth. Which European sector has seen exceptionally high productivity gains? Manufacturing. But now, with the car industry in crisis, even that’s under threat …
Gustav Jönsson: How do you assess the current situation of the European car industry?
