"Is Volkswagen selling its Osnabrück plant to the Israelis?" asked a headline in the local newspaper of the small town in Lower Saxony this week. The news was accompanied by an image created by AI: the facade of the city's famous factory, founded in 1874 and now producing a cabriolet model of one of the latest VW models, with a large Israeli flag flying on its facade. Since reports were published about the Israeli company Rafael's interest in producing components for the Iron Dome systems at the factory about two months ago, the local story has become international.

A company in crisis

The initial report in "The Financial Times’ two months ago was seen by many as an attempt to torpedo the deal, which was being conducted behind the scenes. Volkswagen is currently in crisis, with its vehicle sales and profits collapsing, and it faces fierce Chinese competition and steep US tariffs. Last year, it first announced future plant closures and workforce reductions after decades of expansion. One of them was to be the Osnabrück plant, which has 2,300 employees, and was due to close at the end of 2027..

But Volkswagen has been trying to find solutions. Layoffs at the car giant are not an simple matter, given the company’s strong labor union. The idea, according to a report in March, was for the company to partner with Rafael, the Israeli government defense company, apparently through Rafael’s German subsidiary, DND (Dynamite Noble Defense). The factory was initially supposed to remain under Volkswagen ownership but would switch to producing trucks to carry Iron Dome systems, as well as launchers and generators to operate them. In practice, most of the system except for the interceptor missiles themselves.

Weapons in the Nazi era

The report made headlines in Germany, and raised the question of whether the company would "return" to the arms business. Volkswagen was one of the industrial companies that produced for the German army during the Nazi era, and its management was in close contact with the Nazi leadership, including Hitler himself. After World War II, the company "committed" to abandoning the defense production business and focused on becoming one of the largest car manufacturers in the world. The question of its future path, which could also symbolize a possible rescue direction for other German car companies in an era when defense spending is the only thing growing in Germany, has been the focus of discussions about its future.

Volkswagen CEO Oliver Blume put the issue beyond doubt when he declared, "There will be no production of weapons by Volkswagen." He did not rule out the production of trucks for transporting soldiers or command trucks, and the debate over whether the Iron Dome air defense system is a weapon or a life-saving system is still open. But the result, according to reports in the German media in recent days, is that a new option has come to the table - Volkswagen will sell the factory to Rafael, and remain true to its commitments.

Last Thursday, management and workers met to discuss the sale of the factory. The workers at the factory are part of the management and partners in making strategic and business decisions, as in other Volkswagen factories. The chairman of the workers' council, Jürgen Flek, went to the media afterwards and said that no decision had yet been made. "There are simultaneous talks with several companies," he said, expressing optimism that "a viable solution will be found" for the factory.

At the same time, "Reuters" reported, citing two sources, that Rafael had already filed a letter of intent to buy the factory, while Rheinmetall, which was also mentioned as a possible buyer, had withdrawn. "Initially, Rheinmetall was thinking of producing trucks and vehicles for transporting soldiers there, but the demand for them is not sufficiently high as to justify a purchase," the local NDR network reported. The network reported that "at least one" of the companies remaining in negotiations is "in the defense sector." Defense sources in Germany told "Globes" that the talks are still ongoing.

What will happen to the workers?

The factory has a long and illustrious history as part of German industry. It was founded in 1874 to manufacture horse-drawn carriages, and in 1901 was acquired by German company Wilhelm Karmann. Over the years, the company specialized in producing cabriolet and coupe models for German manufacturers, producing, among other things, Beetle Cabriolets. In 2009, the company went bankrupt, and Volkswagen bought it. Since then, its future has been uncertain. The German car giant has tried to win over defense equipment manufacturers in the past two years and has participated in many defense fairs. As part of these efforts, it even produced prototypes of a military truck and command and control center at its factory in Osnabrück, and presented it, without the Volkswagen logo, in an attempt to convince potential buyers of the possibilities inherent in the factory.

If Rafael does end up buying the plant, the issue of manpower is likely to be significant. At present, Germany's faltering auto industry looks attractive to arms manufacturers, partly due to its skilled workforce, similar materials and advanced production lines. The question of how many of the 2,300 existing employees will remain will play a role in the decision to sell the plant, and to whom. Germany has not yet purchased the Iron Dome system, unlike Finland and is in talks with Greece and other European countries on the matter. It is possible that, as part of a tripartite agreement, local production in Osnabrück could also spur the German military to procure Iron Dome..

The German government has not had the last word on the current deal, which is sensitive at the bilateral level. According to a government response to reports in recent days, Germany "wants to maintain overall control over military technology projects, and to keep them in Germany." It is unclear what the implications of this statement are. Germany is already cooperating with Israel on the Arrow 3 system, and there is joint production of the interceptors for Germany - the world's first customer for the system - and for Israel. But the production is not performed in Germany.

No comment has been forthcoming from Rafael.

Published by Globes, Israel business news - en.globes.co.il - on May 4, 2026.

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