BRUSSELS — Europe’s push to rearm has the continent’s embattled auto industry looking to take on defense production to stave off employment woes and keep factories open.
The billions in public funding for defense offers an appealing — and potentially lucrative — lifeline to the EU’s automakers and their parts suppliers.
Weapons-makers are receiving bigger orders than they can fulfill, owing to wars raging in Ukraine and the Middle East, the threat from Russia and the EU’s push to take more responsibility for its security instead of relying on the U.S.
Arms firms need subcontractors capable of manufacturing at high volumes, making automakers and their suppliers a natural fit.
“We have discussions with people, companies who are competent, used to produce in large volumes,” Eric Béranger, the CEO of European weapon systems company MBDA, said at a press conference on Thursday. “We know how to make weapon systems, but historically, MBDA has not been structured to produce in mass, that’s why we are discussing with a number of potential partners.”
The automotive sector employs more than 13 million and is responsible for 8 percent of the bloc’s GDP, meaning its problems have broad economic — and political — implications.
As carmakers struggle to compete with Chinese manufacturers, face declining sales and reckon with higher energy costs, companies are being forced to shutter factories and lay off tens of thousands of workers.
On the flip side, defense companies are struggling to keep up with the slew of orders and face rising pressure from national governments and the European Commission.
“We need to speed up our development of our defense capabilities according to NATO capability targets,” the EU’s defense commissioner, Andrius Kubilius, told POLITICO earlier this week. “The waiting time for production also is increasing, so we need to see what we need to do in order to assist industries to ramp up their production.”
The Financial Times reported on Tuesday that Volkswagen is in discussions with Israel’s Rafael Advanced Defence Systems, behind the country’s Iron Dome air defense system, to make heavy-duty trucks to carry the system’s missiles, along with launchers and electricity generators.
If the deal goes through, it could save the 2,300 jobs at risk at VW’s Osnabrück factory that is otherwise set to close.
It’s not the first time Volkswagen has been part of the military complex. It made armored vehicles for the Nazis in World War II, while its trucking subsidiary MAN Truck & Bus is in a joint venture with Rheinmetall to produce logistics vehicles for the military.
Volkswagen declined to confirm or deny the report, telling POLITICO, “the production of weapons by Volkswagen AG remains ruled out for the future, and we do not engage in speculation regarding further plans for the Osnabrück site.”
CEO Oliver Blume told media and investors earlier this month that no decision has been made on the future of the Osnabrück factory.
VW has led the sector in looking to defense contracts to shore up production capacity and find new revenue streams, with Blume telling investors a year ago that the German automaker was eager to produce military vehicles.
It isn’t alone. French carmaker Renault has a contract with Turgis Gaillard, which reached out to the car company to develop military drones.
Auto parts suppliers are also turning to defense production as a viable alternative. Without a new revenue stream, they face factory closures and job cuts, with one in four expecting to operate at a loss this year, according to a recent survey from the European Association of Automotive Suppliers.
Around 40 percent of suppliers told the lobby group that they are shifting production to things like defense.
Such a mashup was unthinkable just two years ago, even as the war in Ukraine raged on Europe’s doorstep.
Many workers belonging to Germany’s powerful unions would have balked at making weapons in a country whose role in World War II still looms large.
“People would have been very hesitant to be involved in the production of weapons or anything defense,” said Katharina Weiner, a partner at BakerMcKenzie, who is advising automotive companies shifting to defense production.
But the defense industry is “not shady anymore,” Weiner said.
If the Volkswagen-Rafael deal happens, it could open the floodgates for more deals, she added.
“It will be a signal, and it will push others to be more bold to try to expand in the defense sector,” she said.
Laura Kayali contributed to this report.
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