MICHEL MARTIN, HOST:
For the first time in its history, German automaker Volkswagen is considering shutting down two of its plants inside Germany. It's a move that shows the mounting pressure from Chinese competition and the lackluster state of Europe's biggest economy. NPR's Berlin correspondent, Rob Schmitz, is with us now to talk more about this. Good morning, Rob.
ROB SCHMITZ, BYLINE: Morning, Michel.
MARTIN: Could you just start by reminding us of just how important Volkswagen is in Germany?
SCHMITZ: Michel, Volkswagen is huge in Germany. It's the country's largest industrial employer. It employs 300,000 workers here, and hundreds of thousands more help supply the company. It's a company that's become synonymous with German engineering and industry.
MARTIN: So what do we know about what they have planned?
SCHMITZ: So what we know at this hour is that Volkswagen management is considering closing operations in the cities of Osnabruck and Dresden. Twenty-five hundred workers could lose their jobs. VW executives are holding a meeting with workers today to go over these plans. It's the first time in the company's 87-year history that it's considering shutting down plants in its home country.
MARTIN: Yeah. And when I think of an iconic brand like Volkswagen closing German factories, you know, I think about U.S. automakers shutting down plants in Detroit.
SCHMITZ: Right.
MARTIN: It's a big deal. So how has it gotten to this?
SCHMITZ: Yeah, and this could be a Detroit moment for Germany. In short, VW has failed to innovate on the electric vehicle front, and it's failed to compete. Over the past five years, the company's lost nearly a third of its value, and it is now the worst-performing European car maker. And a lot of this has to do with China.
MARTIN: How so?
SCHMITZ: So Volkswagen was one of the first foreign carmakers to sell cars in China. When I first lived in China, in the 1990s, most cars you'd see out on the road were VWs. The company had a joint venture with a Chinese partner, and together, they became the leading carmaker in China. Half of VW's earnings were from the China market. I spoke to Carsten Brzeski about this history. He's lead economist for ING in Germany. He says many German companies followed VW's path in China, exporting their products and technology to China, and then they sat back and made historic profits. But he says they lost track of something important.
CARSTEN BRZESKI: That somehow they thought, you know, why should we change? Why should we innovate? Why should we, you know, invest in the future if the business is running so excellently? We are so advanced. You know, we can start joint ventures, but the Chinese will never be able to actually copy our technologies because we are so much better.
MARTIN: OK, wow.
(LAUGHTER)
MARTIN: He makes them sound pretty arrogant.
SCHMITZ: Yeah. He goes one step further. He calls VW's attitude towards the Chinese both arrogant and naive. And while Volkswagen did very well in China, so did their Chinese partners. Over the decades, the Chinese learned how to make cars from VW. They worked hard at improving those cars, and now they've spun off their own companies that are selling better and more affordable cars in Volkswagen's. And now VW has lost much of its market share to what are now Chinese competitors not only inside of China, but they're also starting to lose out here on their home turf in Europe.
MARTIN: So what happens now to Volkswagen, and how is this going to affect the German economy?
SCHMITZ: Yeah. VW's worker unions are going to try to block these closures. The unions here in Germany have a lot of say in this, but this is going to be huge - so huge that Germany's federal government has already come out and said they'll intervene to try and prevent closures, because the government knows that this isn't just two plants closing. There are hundreds of small- to medium-sized German companies that supply VW, and when a company as big as VW starts to go down, so do they. This could have devastating ripple effects throughout Germany's economy.
MARTIN: That's NPR's Rob Schmitz in Berlin. Rob, thank you.
SCHMITZ: Thank you. Transcript provided by NPR, Copyright NPR.
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