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November 27, 2019

Audi cuts jobs - the beginning of a trend

Audi shocked Germany yesterday with the announcement of almost 10,000 job cuts, leading to prompt accusations of mismanagement. We are no experts in management but would offer the observation that mismanagement is as prevalent in the car industry today as it has been before. The decline of the fuel-driven car and the diesel scandal have been a huge problem for Audi and the other German car makers. They need the money for new investments. 

The decline of the German car industry is happening on many levels. Car component suppliers are being hit the hardest. Some are so specialised that the phase-out of the fuel-driven engine puts them out of business. Electric engines are much simpler than combustion ones and they use only a fraction of the parts. These, in turn, are not as highly tuned. The technological know-how, and the value-added, lies in the battery.

Audi is the first of the big German car makers to announce job cuts. Next year, most of the job losses in the sector are likely to occur in the supplier industries. Jobs in the car industry still protected until 2021 and 2022, due to job guarantees. The employment effect will therefore reveal itself over a longer period of time.

We note two overlapping effects - one is a relatively mild global cyclical downturn. The other is a structural technology shock. The impact of the latter will be much longer lasting.

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