Hungary’s car industry crisis: Are mass layoffs inevitable?

Hungarian industry is increasingly struggling with a phenomenon known as “internal unemployment”. This term describes a situation where companies retain excess labour despite weak order books.

This happened briefly during the 2008-2009 financial crisis, but only for a few months. Now, however, the problem has persisted for almost two years. Companies are dealing with the situation by restructuring and reallocating working hours, but it is uncertain how long this approach will be sustainable. Companies such as Volkswagen in Germany have already made significant job cuts, raising the possibility of similar measures in Hungary.

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The car industry crisis and an economic paradox

The car industry, a cornerstone of the Hungarian economy, is facing serious challenges. Slow demand from Germany, increasing competition from China and the ongoing shift to electric vehicles have put the industry under immense pressure.

While Hungary’s GDP contraction is unsurprising in this context, the labour market remains remarkably stable, with unemployment rates holding steady and wages continuing to rise. This apparent contradiction stems from companies’ reluctance to lay off workers. Employers fear that once the downturn eases, it will be difficult to rehire skilled workers, so they prefer to retain staff even in lean times.

The labour market has changed significantly over the past decade. Downsizing and rehiring, once a straightforward process, have become more complicated and costly due to widespread labour shortages and difficulties in recruiting qualified staff. This is particularly true in Central and Eastern Europe, where structural unemployment exacerbates the situation. As a result, companies are prioritising employee retention, even when there is insufficient work to justify current staffing levels.

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How car companies in Hungary are coping with the crisis

According to Világgazdaság, Hungarian car manufacturers are adopting different strategies to cope with the current challenges. The Mercedes plant in Kecskemét, for example, has reduced shifts but retained its workforce, while launching retraining programmes. Bosch has taken a similar approach, focusing on retraining and internal redeployment to minimise redundancies despite a global slump in orders. In contrast, the SK On battery plant has already resorted to layoffs and its production future remains uncertain.

Experts warn that the current strategy of retaining workers is not sustainable indefinitely. Unless external demand picks up in the coming months, mass redundancies may become inevitable in Hungary. While some companies, such as Volkswagen in Germany, have already made significant cuts, the question is how long Hungarian companies can maintain their current approach. In the best-case scenario, companies will manage the downturn through retraining and redeployment. The worst-case scenario could see a wave of redundancies, further increasing the economic burden.

The state of the Hungarian industry requires close attention. Although many companies are trying to avoid layoffs, this is only a short-term solution. The coming months will determine whether the economic climate stabilises or worsens, and ultimately when “intra-gate unemployment” could turn into full-blown unemployment. The future of Hungary’s automotive sector and other key industries depends on how effectively companies adapt to the changing global landscape and economic realities.

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