Volkswagen vor Zerreißprobe: Sparzwang trifft Tradition – Werksschließungen und Jobabbau drohen

Volkswagen Faces Crisis! Severe Cost-Cutting Measures on the Horizon

Major layoffs and factory shutdowns loom large. Where did things go wrong?

Trouble is brewing in Wolfsburg after an executive meeting, as Volkswagen plans to terminate a three-decade-long labor agreement that guaranteed job security. The reason: urgent cost reductions are required. "In the current circumstances, without swift corrective action, we can no longer rule out the closure of vehicle production and component sites," the statement continued.

The announcement immediately sparked a strong reaction from the influential works council and the labor union. Volkswagen's head of the works council, Daniela Cavallo, was quick to push back, describing the plans as "an assault on our jobs, locations, and collective bargaining agreements" in a special edition of the works council's newspaper. "We will fiercely defend against this," Cavallo stated. "There will be no VW plant closures on my watch!" Thorsten Gröger, the district leader of IG Metall in Lower Saxony, criticized the proposal as "irresponsible" and one that "shakes the very foundations of Volkswagen."

Chairperson of the works council Daniela Cavallo

What's the situation in Wolfsburg? At the end of 2023, Volkswagen implemented a comprehensive cost-cutting initiative aimed at boosting the profitability of its main VW brand. However, it has recently emerged that the intended targets will not be met. This has sparked debates about potential layoffs and factory shutdowns, which are complicated to execute due to the influential employee representatives and the involvement of the Lower Saxony state as a shareholder.

Both parties are aware that it's not possible to implement every suggestion. However, there is a mutual understanding that changes are essential. It's also evident that the crisis cannot be solely attributed to either traditional combustion engine vehicles or electric vehicles.

The central headquarters of the Volkswagen Group located in Wolfsburg.

Volkswagen Produces Excessive Amounts of Vehicles

A primary issue facing Volkswagen is the excess production capacity at their factories. Currently, Volkswagen is unable to sell up to half a million cars annually. Sales in China, a crucial market for the company, are faltering, and there's a general reluctance in Europe to commit to expensive purchases. This results in the factories operating below their potential, presenting the management with several undesirable choices.

One approach could be to cut back on production or temporarily shut down factories. Alternatively, cars could continue to be manufactured and pushed into the market at a loss, which would further diminish already low profit margins and decrease resale values.

The electric vehicle market is experiencing a downturn

The electric vehicle sector is proving to be a challenging arena. Volkswagen, in the aftermath of the emissions scandal that hit nine years ago, shifted gears dramatically and launched a platform dedicated to battery electric vehicles. However, the initial releases of their models were premature, leading to lasting damage to the reputation of their ID series. The ID.3, in particular, prior to its facelift, was criticized for its low-quality interior (similar to the criticisms of Golf 8), and its design was deemed uninspiring. VW's current head of design, Andreas Mindt, is expected to bring back a sense of familiarity and a touch of nostalgia to the designs.

Despite the resolution of the most severe issues, the shift towards electric vehicles initiated by former CEO Herbert Diess has yet to yield financial benefits. The demand has plummeted following the cessation of government incentives, highlighting the importance of stable policy conditions.

Profit Margins Slump

An additional challenge faced is the company's low profit margins. As reported on the September 4th episode of "Tagesthemen," Volkswagen at times generates only a one percent profit margin on sales. This figure doesn't just fall short when compared to its competitors, but it also greatly limits the financial leeway of the firm. The shortage of funds is a roadblock to essential investments and hampers the ability to adapt to shifts in the market. A case in point is the anticipated demand drop due to the discontinuation of government incentives for electric vehicle purchases in Germany at the end of 2023.

China Poses Challenges for Volkswagen

Volkswagen is encountering obstacles in China, a critical market for the automaker. Despite maintaining a significant presence, the company is seeing a decline in its market share. The surge in electric vehicle adoption in China has presented challenges for Volkswagen as they struggle to align with the preferences of Chinese consumers. Local Chinese brands have made significant advancements in this sector. Furthermore, the support from the Communist Party towards domestic car manufacturers intensifies the competition for foreign companies like Volkswagen.

To overcome these obstacles, Volkswagen needs to adopt stringent cost-cutting measures that will likely be tough for the workforce to endure. The firm might look forward to an economic upswing in the coming year, yet the more rigorous EU fleet emission limits set for 2025 compel automakers to push through highly electrified vehicles at all costs.

According to calculations by Automotive News Europe, Volkswagen would need to reduce its sales of gasoline-powered cars in Europe by 14 percent, while simultaneously increasing sales of pure electric vehicles by 15 percent in order to comply with the emissions limit of 94 grams per kilometer. Failure to meet these targets could result in substantial fines per vehicle.

Additional challenges loom: While vehicle software has seen advancements, Volkswagen struggles to compete with rivals such as Android Automotive. Furthermore, Volkswagen's success in the Chinese electric car market is crucial. Failure here would render all other efforts futile.

Increased Volkswagen Presence:

The question remains as to how the influential works council and the union will respond. It's anticipated that demonstrations and possibly strikes will occur, which could hinder the brand's consolidation efforts. However, the representatives of the employees are neither likely to accept these cost-cutting measures passively. The situation in Wolfsburg continues to be uncertain.

Source: Daily news program, Automotive week, Volkswagen

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