Economy
Tackling historic crisis, Volkswagen to cut capacity, model lineup
Volkswagen plans to drastically cut its model lineup and further pare back capacity, as Europe’s largest automaker considers a far-reaching overhaul that sources say could cost around 100,000 jobs.
Volkswagen is under unprecedented pressure to restructure the business model that underpinned its success for decades, as it grapples with high costs and excess capacity at home.
Those factors, along with rising Chinese competition, regulation, and U.S. import tariffs, have sliced its profit margins in half between 2021 and 2025.
The company said on Thursday, following a supervisory board meeting, that its lineup would be gradually cut by up to half, as it concentrates on the most attractive market segments. Production capacity will be reduced to nine million vehicles per year, down from 10 million currently.
“The global situation has continued to deteriorate over the past twelve months,” Volkswagen CEO Oliver Blume said. “That is why we are acting now.”
Sources have said Blume is considering closing four German plants – Hanover, Emden, Zwickau and Audi’s Neckarsulm site – and cutting up to 100,000 jobs, roughly double the number currently planned, in what would be Volkswagen’s biggest restructuring yet.
Volkswagen did not provide specifics on what sources have said about potential job cuts and factory closures, which drew massive worker protests across company sites on Thursday.
The prospect of plant closures and deep job cuts at one of Germany’s most storied companies, founded 89 years ago, exemplifies the challenges Europe’s largest economy faces as it struggles with weak growth and high labor and energy costs. So-called offering complexity, including the number of equipment options, will be cut by up to 75%.
No word on job-cut speculation
At the board meeting at Volkswagen’s headquarters in Wolfsburg on Thursday, Blume faced the committee’s powerful labor representatives, who oppose deeper cuts across the group, which includes the Audi and Porsche brands.
He is also under pressure from the Porsche and Piech owner families, whose core investments have lost tens of billions of euros in market value in recent years. Volkswagen shares have lost more than half their value in the last three years.
In Wolfsburg, workers blew whistles, waved red union flags and marched behind a banner reading “gemeinsam stark” – “strong together” – as a klaxon sounded in the background.
The IG Metall union said around 400 people were demonstrating in Wolfsburg, with union representative Thorsten Groeger warning the company risked a “major conflict” with workers.
Daniela Cavallo, the head of the company’s works council, which represents employees, said staff were not to blame for the sector’s crisis, and “great fear and deep uncertainty” were spreading across company factories and offices.
Volkswagen’s works council called on Blume to address speculation around job cuts and plant closures by a Friday deadline, warning of further extraordinary staff meetings in the months ahead if he did not.
“Not a word about production, not a word about employment,” said German automotive industry analyst Ferdinand Dudenhoeffer. “One could also say that uncertainty remains – which is not good for customers, employees and investors.”
Volkswagen faced mass strikes in December 2024, but there is currently an agreement for workers not to take industrial action while existing work contracts are in force.
The company’s supervisory board includes representatives of the owner families, unions and the Lower Saxony state government, a power-sharing structure that often complicates decision-making.
Car plants expected to cut output
Under Blume’s last restructuring deal, unions secured a commitment from management to avoid German plant closures, prompting Volkswagen to seek alternative uses for underutilized sites.
Those efforts include a long-running search for a defense-sector partner for the Osnabrueck factory and the possibility of producing models designed for the Chinese market in Germany.
Mobility Global data seen by Reuters estimates the group’s German car plants will operate at 81% of standard capacity in 2026. That figure is expected to fall to 73% by the end of the decade, even after the anticipated removal of Osnabrueck from the network.
Among the four sites threatened with closure, Zwickau is forecast to have the highest utilization rate in 2026 at 88%, which is expected to fall to 42% by 2030, the data showed.
Conservative Chancellor Friedrich Merz, currently trailing in polls to the far-right Alternative for Germany (AfD), has promised a series of reforms to make Germany more competitive.
The AfD, which could take power in a German state for the first time in elections in September, has seized on Volkswagen’s troubles as a line of attack against the government.
Treasury and Finance Minister Mehmet Şimşek said Thursday that Türkiye’s de-dollarization drive had made significant progress, with Turkish lira deposits rising to their highest share of total bank deposits in about 11 years.
Şimşek said increased policy predictability and stronger investor confidence have supported the shift toward lira-denominated savings.
“Despite multiple shocks, the share of Turkish lira deposits in total deposits has reached approximately 62%, the highest level in the past 11 years,” Şimşek wrote on the social media platform X.
The rate compared to about 31.6% share in August 2023.
“We will continue our policies to reinforce confidence in the Turkish lira, strengthen macro-financial stability and achieve price stability, which is the prerequisite for sustainable high growth,” he added.
Data released by the central bank Thursday showed total deposits in the banking sector fell 0.82% in the week ending July 3 to TL 31.37 trillion (about $670 billion) from TL 31.63 trillion a week earlier.
Lira-denominated deposits declined 2.4% to TL 17.10 trillion, while foreign currency deposits edged up 0.02% to TL 10.13 trillion.
Total foreign currency deposits stood at $256.9 billion, of which $217.7 billion belonged to domestic residents. Adjusted for exchange-rate effects, domestic residents’ foreign currency holdings fell by $3.25 billion during the week.
Separately, the Central Bank of the Republic of Türkiye (CBRT) said its gross international reserves rose by $10.49 billion to $159.69 billion during the same week.
Gross foreign exchange reserves increased by $7.70 billion to $61.95 billion, while gold reserves climbed by $2.79 billion to $97.74 billion.
OpenAI on Thursday unveiled ChatGPT Work, an agent within its popular chatbot designed to execute tasks across different applications and files, marking the startup’s latest push into workplace automation.
Powered by the company’s new GPT-5.6 model, ChatGPT Work can gather context from apps, files and workflows to create finished documents, spreadsheets, presentations, reports and websites, the company said.
The launch reflects intensifying competition to build and sell AI tools for professional use, as technology companies seek to capitalize on rising demand for autonomous agents that can complete complex tasks with minimal human input.
ChatGPT Work comes months after OpenAI rival Anthropic stepped up its enterprise push with Claude Cowork, an agent capable of planning and executing multi-step tasks autonomously.
OpenAI, which is preparing for its IPO, also announced a new ChatGPT desktop application and a hosted websites feature to let users build and share websites directly through Work.
ChatGPT Work will roll out on Thursday on web and mobile, and expand over the next few days.
Türkiye’s exports to African countries surged 12% on an annual basis to $11 billion (TL 515.63 billion) in January through June, reflecting Ankara’s strengthening economic cooperation and trade diplomacy with the continent, according to the data from the Türkiye Exporters Assembly (TIM).
Trade diplomacy has become one of Ankara’s key foreign trade policy tools in strengthening economic ties with Africa since the Turkish Trade Ministry launched an action plan in 2003 to boost commercial and economic relations with African nations.
The plan aims to promote mutual investment, expand the presence of Turkish firms in projects across various sectors and strengthen cooperation between Turkish and African business communities.
In the first half of the year, Morocco was the top African destination for Turkish exports with $2.2 billion, followed by Egypt with around $2 billion, Libya with $1.3 billion, Algeria with $950.9 million and Tunisia with $619.4 million.
Türkiye’s investments in Morocco are mostly focused on sectors including the automotive industry, cleaning products, textiles, mining, logistics, and iron and steel.
The free trade agreement (FTA) between the two countries plays a key role in resolving trade issues and identifying new areas of cooperation.
Some 250 Turkish firms operate in Morocco, which will co-host the 2030 World Cup with Spain and Portugal. The event is expected to offer Turkish firms new opportunities for cooperation in transportation infrastructure, construction, contracting and other areas.
Ankara has set a target of $15 billion in trade volume with Egypt, its largest trading partner in Africa and its second-largest destination for investments on the continent.
Many Turkish companies operating in textiles, chemicals, manufacturing, tourism and other sectors are active in Egypt.
Turkish contractors are expected to play a greater role in Egypt’s 14 planned new smart city projects.
Türkiye and Egypt are focusing on boosting cooperation in areas including energy, mining, shipbuilding and the development of Ro-Ro transportation.
Meanwhile, Türkiye’s exports to Libya are mainly made up of furniture, food, machinery, mechanical devices and tools, and construction materials made from iron and steel.
The two countries cooperate in infrastructure, energy and foreign trade.
Türkiye-Algeria trade relations have also steadily deepened in recent years, with economic cooperation focused on energy, industry, textiles, iron and steel, and construction, while the two countries aim to reach $10 billion in trade volume.
China’s consumer prices stabilized in June as energy and commodities prices eased, official data showed on Thursday.
The consumer price index (CPI), a key measure of inflation, rose 1.0% year-on-year in June, edging lower from 1.2% in May, data from the National Bureau of Statistics showed.
It fell slightly below a Bloomberg forecast of 1.1%.
However, last month’s CPI was still well below the government’s two percent target for the year.
“Factors such as imported international price pressures contributed to a slowdown in the rate of increase for domestic industrial consumer goods prices,” according to Dong Lijuan, chief NBS statistician.
The growth rates of prices for gold jewellery and gasoline also eased, Dong added.
The uptick in Chinese inflation caused by the Iran war “continued to unwind in June, amid lower prices for oil and many other commodities”, said Julian Evans-Pritchard, head of China economics at Capital Economics.
“The latest escalation in U.S.-Iran tensions could deliver some renewed upward pressure on inflation in the near-term,” Evans-Pritchard wrote in a note.
U.S. President Donald Trump ordered new strikes on Iran on Wednesday and warned of “much worse” if Tehran continues to attack vessels in the vital Strait of Hormuz.
He said earlier that a ceasefire with Iran was over, prompting mediators Pakistan and Qatar and the United Nations to call for de-escalation.
But Evans-Pritchard added that the impact of an escalation of U.S.-Iran tensions will “remain limited to a few narrow areas and inflation still looks set to return near zero once energy supply normalizes.”
The June producer price index (PPI), which measures wholesale inflation, increased by 4.1% on a yearly basis, up from 3.9% in May, and was in line with Bloomberg’s forecast.
The figure marked the quickest pace since July 2022, when the PPI came in at 4.2%.
The gauge had been in negative territory since that October and did not reverse until March this year.
The steady rise was partly driven by industries like coal mining and electrical machinery manufacturing “experiencing price increases,” NBS’ Dong said.
U.S. President Donald Trump issued an order for a trade embargo on Spain on Wednesday, asking Treasury Secretary Scott Bessent to “cut off all trade … including visits” with the country amid tensions over defense spending.
The Treasury, Commerce Department and U.S. Trade Representative’s office will work to present Trump with “a menu of Spanish products that may be embargoed in the coming days,” a U.S. official told Reuters. The comments suggest a trade ban could be partial.
Here is a look at Trump’s options to halt trade with Spain and the implications of such a move.
A trade embargo?
Trade lawyers say that the International Emergency Economic Powers Act (IEEPA) remains available for Trump to impose a trade embargo or economic sanctions against a country despite the U.S. Supreme Court’s ruling in February against Trump’s use of IEEPA to impose tariffs.
To invoke IEEPA, Trump must declare a national emergency over an “unusual or extraordinary threat” to U.S. national security, foreign policy, or the economy. The law has been widely used to restrict commerce with Iran, Russia and North Korea and to block dollar-based dealings by thousands of companies, individuals and other entities deemed terrorism or national security threats.
Peter Shane, a New York University law professor, said it was “hard to see” how one of 32 NATO countries missing a peacetime defense spending target by three percentage points of GDP constitutes such an emergency for the United States.
But the Supreme Court did not pass judgment on the nature of Trump’s tariff emergency, leaving his ability to declare a national emergency “undisturbed,” said Mayur Patel, a former U.S. Senate Finance Committee Republican trade counsel.
“IEEPA would allow Trump to do an embargo,” said Patel, now a trade partner with Hogan Lovells in Washington, even if it is later challenged in court.
How much affect?
Total two-way goods trade topped $47.9 billion in 2025 according to U.S. Census Bureau data. Add in services, including travel, and the total grows to $74.5 billion, according to Commerce Department Bureau of Economic Analysis data, making Spain the 23rd largest overall U.S. trading partner.
The U.S. sells more goods to Spain than it buys, exporting $26.6 billion in goods to the country in 2025 and importing $21.35 billion for a U.S. trade surplus of $5.25 billion.
Top U.S. goods import categories from Spain based on Census Bureau data are pharmaceuticals, electrical transformers and power converters, personal care products, petroleum products, glazed ceramics and olive oil. Top U.S. exports to Spain are pharmaceuticals, crude oil, civilian aircraft and corn.
An embargo also could disrupt bilateral investment. Spanish companies have invested €97.2 billion ($111 billion) in the U.S., making it their largest investment destination worldwide, according to Eurostat data cited by the American Chamber of Commerce in Spain.
The U.S. is Spain’s largest foreign investor, with over €116 billion ($132.4 billion) in productive capital investment employing around 200,000 people nationwide.
Travel to and from Spain
It’s unclear how Trump might restrict Spaniards’ travel to the U.S., where their national soccer team plays a World Cup match on Friday. But his administration last year banned citizens from more than 30 countries from entering the U.S., including tourists, students and business travelers, citing security concerns.
Trump also did not indicate whether a travel ban would apply to outbound visitors to Spain, whose spending there constitutes a services import to the U.S.
According to Spain’s national statistics agency INE, about 4.45 million Americans visited Spain for more than a day in 2025, a 4.3% increase from 2024. Americans made up about 4.6% of Spain’s total 96.8 million visitors in 2026, the sixth largest source country after Britain, France, Germany, Italy and the Netherlands.
But according to Bank of Spain data, travelers from the U.S. were Spain’s fourth-largest source of tourism revenue at €6.15 billion in 2024. The bank said Americans tend to stay longer and spend more per trip than other tourists.
What are the options?
Patel said that under IEEPA, Trump could impose a selective embargo, as he and his predecessor Joe Biden have done against Russia, allowing in some goods deemed essential. In Russia’s case these include enriched uranium, fertilizers and palladium.
Trump has previously exempted aircraft parts from his tariffs, so jet engine turbine components from Spain’s ITP Aero used by General Electric and RTX’s Pratt & Whitney could be candidates. Trump also has other tools to impose tariffs or other retaliatory trade measures, including Section 301 of the Trade Act of 1974, an unfair trade practices statute that his administration is now proposing for tariffs related to forced labor on goods from 60 trading partners including the EU.
In addition, Trump has a Cold War-era trade law, Section 232 of the Trade Expansion Act of 1962, that he has used to protect autos, steel, aluminum and other sectors deemed important to national security.
A complicating factor in any potential trade action against Spain is that the EU sets trade policy for its member countries and requires common treatment across the bloc. But the U.S. has previously threatened individual EU countries with tariffs over their digital services taxes.
The Commerce Department also could target certain Spanish imports with anti-dumping and anti-subsidy duty investigations. Trump’s first administration, at the behest of olive producers in California, imposed a 30% anti-dumping tariff on Spanish black olives under the Tariff Act of 1930, with a separate Commerce investigation ruling that they benefited from unfair subsidies.
Previous threats
The first threat of trade punishment came in October 2025, when Trump said he “may” punish Spain with tariffs for refusing at a NATO summit in The Hague four months earlier to commit to raising defense spending to 5% of national output. In March this year he went further, ordering Bessent and Trade Representative Jamieson Greer to begin investigations to embargo all products from Spain. To date, no such investigations have been disclosed on the Federal Register.
Spanish contribution
Spanish core defense expenditure is expected to reach €35.41 billion in 2026 ($40.4 billion), equivalent to 2% of its GDP, according to NATO’s latest estimates, up from €11.17 billion ($12.8 billion) when Prime Minister Pedro Sanchez took office in 2018.
The country was NATO’s seventh-largest defense spender in absolute terms in 2025, according to Spanish government officials citing NATO data. It has mobilised a total of €3.795 billion in support for Ukraine since 2022.
Türkiye’s drone powerhouse on Tuesday called for deeper industrial partnerships among NATO members to accelerate the development and production of unmanned aerial vehicles (UAVs), arguing that cooperation would be more effective than duplicating capabilities across the alliance.
Speaking on the sidelines of the NATO summit in Ankara, Baykar CEO Haluk Bayraktar said the growing demand for drones in modern warfare requires shorter development cycles, faster production and greater manufacturing capacity.
Bayraktar added that while large defense companies such as Baykar can invest ahead of demand, startups require stronger market signals and financing to build manufacturing capacity.
“In our approach in Türkiye, for large-scale companies like ours, we do not even wait for demand to emerge to build capacity,” he said. “What we see on the ground shows that there is a major need for these technologies.”
However, when it comes to new ventures and startups, Bayraktar said it’s crucial for them to build this capacity themselves to meet the demand, which amounts to billions of dollars.
Baykar is the largest exporter of UAVs, he said, noting that the company has made major investments over the past 25 years in platforms ranging from unmanned combat aircraft to strategic-class systems.
It currently exports to 40 countries, including several NATO members, but wants to deepen cooperation within the alliance, according to the chief executive.
Bayraktar highlighted Baykar’s joint venture with Italy’s Leonardo, Leonardo Baykar Aerospace Systems (LBA Systems), as a model for future cooperation.
“It is much faster to cooperate instead of trying to invent everything from scratch or compete,” he said. “We have our platforms and systems. Leonardo has very strong payloads, radars, electronic systems and different mission payloads.
“It is necessary to create synergy by bringing the best together and combining these capabilities. The main point should be to combine these strengths instead of developing everything from zero.”
Bayraktar said the partnership is designed to develop new technologies jointly rather than transfer existing intellectual property.
“Technology sharing can of course happen, but the issue is not sharing intellectual property,” he said. “Under joint ventures, the aim is to create new intellectual property on the existing intellectual property of the parties and build on current capabilities.”
He said building such capabilities from scratch in another country could take decades, while cooperation could allow allies to start developing advanced technology immediately and gain an edge.
FPV capacity
Bayraktar said NATO includes both large and small countries, adding that sharing capabilities and creating synergy would be more efficient than trying to establish the same capacity everywhere from scratch.
He also said different production and cooperation models are needed depending on the type of UAV.
“UAVs are increasingly becoming part of our lives and are now among the main elements of war environments,” he said. “There is demand, there is necessity. What we see on the ground clearly shows that these technologies are greatly needed.”
He said UAVs include combat aircraft-class systems, strategic-class platforms and smaller drones, adding that every country should build capacity in first-person view (FPV) drones.
“These are almost like ammunition; every country needs a bullet manufacturer,” he said. “But for combat aircraft-class UAVs, alliances are needed to build this capability. I believe this is much more beneficial.”
Bayraktar said Türkiye’s defense industry has expanded dramatically over the past two decades, growing from 17 companies to more than 3,000, while annual defense exports have risen from $250 million in 2002 to more than $10 billion today.
“We now make in one week the defense exports that were $250 million at that time. Our weekly defense exports have reached around $450 million,” he added.
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