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

Volkswagen's management is convening emergency meetings with employees this week to discuss unprecedented cost-cutting measures, including reports of up to 100,000 job losses and the potential closure of several German car factories. The company is grappling with a deep structural crisis brought on by intense pressure from Chinese rivals, the shift towards electric vehicles (EVs), increasing production costs, and other challenges.

As Europe's largest carmaker by volume, Volkswagen faces significant exposure to overcapacity in its German plants, high fixed costs, and reliance on China. Workers have expressed deep concerns about the communication of the restructuring plan, which they have described as "disastrous." Nine separate meetings will be held throughout the week, starting on Tuesday at Volkswagen's headquarters in Wolfsburg and continuing at other sites like Emden, Zwickau, Braunschweig, and Hanover.

Workers had previously agreed to around 50,000 job cuts, mainly through voluntary redundancy schemes, but management now expects that an additional 50,000 positions may need to be eliminated. Volkswagen's CEO, Oliver Blume, has emphasized that the company is in a "more than critical state" and that the measures taken so far are insufficient to restore competitiveness.

Blume has stressed that Volkswagen is "oversized" and that the firm's bloated structure often leads to being too slow and too complicated. The company's origins, which included controlling more stages of production and acquiring rivals, have contributed to its current size. Additionally, Volkswagen's slow transition to electric vehicles, coinciding with the rise of Chinese competitors, has resulted in a substantial sales drop in China, its former number one market.

While closing German factories would be a last resort, Blume believes that the company cannot see a profitable future for its German plants in the 2030s. Other automakers have criticized Germany's high operating costs, with Mercedes-Benz CEO Ola Källenius noting a significant 70% cost gap between the firm's Hungarian and German operations.

VW's works council head, Christiane Benner, has criticized the company for delivering a "another slap in the face" to workers, who are among the highest-paid auto workers in the world due to union influence and the works council. After accepting the company's earlier restructuring plans, Benner expressed disappointment in the new round of cost-cutting measures.

During a meeting with workers in Wolfsburg on Tuesday, VW's works council chair, Daniela Cavallo, acknowledged that trust in Blume and the executive board has been damaged but emphasized that it has not been "beyond repair." The supervisory board, which includes shareholders and worker representatives, recently rejected the second round of cost-cutting proposals.

The rejection is further complicated by the fact that Volkswagen is partially owned by the state of Lower Saxony, which holds 20% of the voting rights and has refused to endorse the plans. Lower Saxony's premier, Olaf Lies, emphasized the state's importance to the automotive industry and urged for joint solutions. Blume revealed that he has developed the largest transformation plan in the history of the Volkswagen Group, aiming to halve the company's model lineup and reduce overheads, particularly in Germany.

The automaker will also reduce its global production target from a peak of about 11 million vehicles in 2018 to 9 million annually in the future. Faced with rising competition from China, US tariffs, geopolitical issues, and red tape, Blume warned that VW management must assume the risks will worsen worldwide. He emphasized that the next few years will be decisive in determining which carmakers remain viable.

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