VW's future could shape Germany's auto future

Volkswagen executives are convening urgent meetings with workers as the automotive giant implements a drastic cost-cutting plan, which could see up to 100,000 job losses and the shutdown of several German factories. The crisis stems from intense competition from Chinese rivals, a shift towards electric vehicles, higher production costs, and other challenges.

As Europe's largest carmaker, Volkswagen bears the brunt of overcapacity in its German plants, high fixed costs, and its dependence on China. Workers are particularly apprehensive about the way the restructuring has been communicated, calling it "disastrous."

Nine meetings will be held between Tuesday and the end of the week, with discussions taking place at various sites, including VW's headquarters in Wolfsburg, Emden, Zwickau, Braunschweig, and Hanover. Workers had previously agreed to around 50,000 job cuts, mainly through voluntary redundancy schemes, but management now expects an additional 50,000 positions to be eliminated.

CEO Oliver Blume has emphasized that Volkswagen is in a "more than critical state" and that existing measures have proven insufficient to restore competitiveness. Blume stated, "We are oversized. That often makes us too slow and too complicated."

With nearly 630,000 employees, Volkswagen has expanded beyond its competitors over the years by controlling multiple stages of production, including components and software, while also acquiring rivals such as Skoda, Porsche, SEAT, and Bugatti. The company has struggled to transition to electric vehicles, particularly as Chinese competitors have gained ground, leading to a significant sales decline in China, its former top market.

Blume warned that Volkswagen currently produces around half a million vehicles in Europe each year in excess of what is necessary.

While the closure of German factories would be a last resort, Blume believes the company cannot see a profitable future for them in the 2030s. Other automakers have criticized Germany's high operating costs, with Mercedes-Benz CEO Ola Källenius pointing out a 70% cost gap between the firm's Hungarian and German operations. Blume is expected to face a hostile reaction from Volkswagen workers, who are among the highest-paid auto workers globally due to strong unions and works councils.

After already accepting VW's earlier restructuring plans, Christiane Benner, head of the IG Metall union, expressed disappointment, stating that workers are facing yet another "slap in the face."

The supervisory board, which includes shareholders and worker representatives, rejected the second round of cost-cutting proposals last month. Furthermore, the German state of Lower Saxony, which holds 20% of the voting rights and has a vested interest in maintaining its automotive industry, has refused to endorse the plans. Lower Saxony's premier, Olaf Lies, emphasized that preserving the state's automotive sector is crucial.

Blume revealed that he has drawn up the largest transformation plan in Volkswagen Group history, aiming to halve the model lineup and reduce overheads, particularly in Germany. The automaker also plans to lower its global production target, which peaked at 11 million vehicles in 2018, to 9 million vehicles per year in the future.

Facing growing competition from China, US tariffs, geopolitical tensions, and red tape, Blume warned that VW management must assume the risks will worsen globally. He noted that the coming years will be decisive in determining which carmakers remain viable, stating that although Volkswagen achieved a solid 3.8% operating margin, profits are inadequate to invest in new technologies, products, and maintain the company's sites.