Will Volkswagen's crunch week decide Germany's auto future?

Volkswagen's management is convening extraordinary meetings with workers this week amidst an unprecedented cost-cutting drive, which may result in up to 100,000 job losses and potential closure of several German car factories. The German auto industry is grappling with a deep structural crisis due to intense competition from Chinese rivals, the shift towards electric vehicles (EVs), and rising production costs.

As Europe's largest carmaker by volume, Volkswagen faces significant challenges, including high fixed costs, dependence on China, and overcapacity in its German plants. Workers have expressed concern over the communication of the restructuring process, describing it as "disastrous." The company has already agreed to around 50,000 job cuts, but now anticipates an additional 50,000 layoffs.

Volkswagen CEO Oliver Blume has emphasized that the company is in a "more than critical state" and that the initial measures are insufficient to restore competitiveness. Blume stated that Volkswagen is "oversized" and that the current structure often leads to sluggishness and complexity. With nearly 630,000 workers, Volkswagen has grown more bloated than its competitors over the years, having acquired rivals like Skoda, Porsche, SEAT, and Bugatti.

The company has also been slow to transition to EVs, which has resulted in a significant sales decline in its key market of China. Blume warned that Volkswagen currently over-produces around half a million vehicles annually in Europe and that closing German factories may be the last resort due to their unprofitability in the 2030s.

Other automakers have criticized Germany's high operating costs, highlighting a 70% gap between the firm's Hungarian and German operations. Volkswagen's CEO, Blume, is expected to face resistance from workers, who are among the highest-paid auto workers globally due to strong union representation and works council influence. Christiane Benner, head of the IG Metall union, expressed disappointment, stating that workers are facing yet another setback.

The company's supervisory board, which includes shareholders and worker representatives, rejected a second round of cost-cutting proposals last month. The matter is further complicated as Volkswagen is partly owned by the state of Lower Saxony, which holds 20% of the voting rights and has refused to approve the plans. Lower Saxony's premier, Olaf Lies, emphasized the importance of maintaining automotive jobs in the region.

Blume revealed that he has developed the largest transformation plan in Volkswagen's history, aiming to halve the model lineup and lower overheads, particularly in Germany. The company will also reduce its global production target from 11 million vehicles in 2018 to 9 million annually. Faced with mounting competition from China, US tariffs, geopolitical issues, and red tape, Blume believes that the next few years will be decisive in determining which carmakers remain viable.

He acknowledged that while Volkswagen achieved a solid 3.8% operating margin, the profits are insufficient to invest in new technologies, products, and maintain the company's sites.