European auto investors are accustomed to bumpy rides. The sector is known for its tendency to chase volume, at the expense of margins, and periodically end up on the skids. In this light, news that Volkswagen is pondering the closure of the Audi plant in Brussels is comforting. Expect others to be forced to follow in its tail lights.
VW’s move is somewhat of a rarity. It would mark the German carmaker’s first-ever plant closure in Europe. Ford’s Saarlouis plant in Germany is also on the way out, and the UK is, of course, no stranger to car companies ceasing production. Yet, by and large, overcapacity in Europe has been managed by removing shifts and reducing output, rather than wholesale scrapping.
That is going to become increasingly difficult to do. European light vehicle sales, while cyclical, are well below their peak, which Bernstein puts at 22.4mn in 2007. That compares with a market of only 17.8mn in 2023, or a 4.6mn shortfall.