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

This week Volkswagen's management is convening emergency meetings with employees amid a massive cost-cutting campaign that could include up to 100,000 job losses and the closure of several German car factories. The German auto industry is grappling with a significant structural crisis, driven by intense competition from Chinese rivals, the transition to electric vehicles, rising production costs, and other headwinds.

As Europe's largest carmaker by volume, Volkswagen is under the most pressure from overcapacity in its German plants, high fixed costs, and reliance on the Chinese market. VW has agreed to cut around 50,000 jobs through voluntary redundancy schemes, but management now believes an additional 50,000 positions must be eliminated.

Volkswagen's chief executive, Oliver Blume, has labeled the company's current state as "more than critical" and admitted that previous measures have been insufficient to restore competitiveness. Blume insists that VW is "oversized," which often leads to sluggishness and complexity. The automaker's dominance in production stages, including components and software, has made it slow and cumbersome compared to competitors.

Additionally, VW lagged behind in transitioning to electric vehicles as Chinese manufacturers gained market share, leading to a decline in sales in China, its once dominant domestic market.

With nearly 630,000 workers, Volkswagen has grown larger than its competitors over the years due to its control over more production stages and the acquisition of rival brands such as Skoda, Porsche, SEAT, and Bugatti. While the company is considering closing German factories, Blume stated that they are currently unable to see any viable way to make them profitable in the 2030s.

Other automakers, such as Mercedes-Benz, have criticized Germany's high operating costs, estimating a 70% gap between its Hungarian and German operations. Blume is expected to face backlash from Volkswagen employees who are some of the highest-paid auto workers globally due to strong union representation and works council influence.

After initially accepting VW's earlier restructuring plans, the IG Metall union, led by Christiane Benner, expressed disappointment in the latest measures, calling it "another slap in the face." During a meeting with workers in Wolfsburg, the works council chair stated that trust in Blume and the executive board has been damaged, but not irreparably.

The supervisory board, composed of shareholders and worker representatives, rejected the second round of cost-cutting proposals last month. The German state of Lower Saxony, which owns 20% of VW, has also rejected the plans, citing the need to preserve the state as the "automotive country." Blume presented the "Target Vision 2030" plan, aiming to halve VW's model lineup, reduce overheads, and lower global production targets, now projected to be around 9 million vehicles per year.

The automaker faces increasing competition from Chinese electric vehicles, US tariffs, geopolitical pressures, and EU net-zero rules, which could have severe implications for the company's future viability.