The German auto industry is facing a comprehensive crisis as high costs, falling European demand, and competition from China force manufacturers to pivot toward defense production. In February, Mercedes-Benz reported a 49% decline in profit for the past year, while most major German manufacturers—with the exception of BMW—have begun mass layoffs. The German auto industry is now looking toward the defense sector, which is experiencing a boom due to heightened geopolitical tensions, emerging as a potential alternative for these struggling industrial giants.
German Auto Industry: Mercedes and VW Consider Militarization
Mercedes-Benz CEO Ola Källenius told the Wall Street Journal that Europe must develop its defense capabilities in an increasingly unpredictable world, and his company is prepared to participate in that process. Källenius noted that military orders would represent only a small portion of the core business and did not disclose specific projects.
Volkswagen CEO Oliver Blume is also considering a shift toward defense. By the end of the year, he will decide whether to produce military vehicles at the company’s struggling plant in Osnabrück. Blume emphasized that VW does not plan to manufacture tanks or artillery, stating the focus would remain strictly on logistics vehicles.
Defense Giants Acquire Labor and Facilities
While the automotive industry declines, defense contractors are reaching record sales levels. Rheinmetall, Germany’s leading arms manufacturer, plans to acquire facilities from the stagnating auto sector. The company is specifically targeting the VW plant in Osnabrück and intends to repurpose its own automotive component sites in Berlin to meet military production needs.
Military electronics manufacturers are also capitalizing on the automotive downturn. German aerospace firm Hensoldt is actively recruiting engineers and skilled workers from Continental and Bosch. Hensoldt CEO Oliver Dörre stated that his company is “benefiting from the difficulties in the automotive industry.” As a result, German industrial workers are increasingly transitioning from assembling family crossovers to building armored vehicles.
