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

Volkswagen's management is convening a series of urgent meetings with employees this week to discuss a major cost-cutting initiative. Reports suggest up to 100,000 job losses could be on the table, as well as the potential closure of several German car factories. The auto industry in Germany is grappling with a deep structural crisis, driven by competition from Chinese rivals, the shift towards electric vehicles, and higher production costs.

As Europe's largest carmaker by volume, Volkswagen is most exposed to these challenges, particularly due to its German plants, high fixed costs, and dependence on the Chinese market. Workers have expressed significant concerns about how the restructuring has been communicated, describing the process as "disastrous." Nine separate meetings will be held between Tuesday and the end of the week at various VW sites, including headquarters in Wolfsburg and locations in Emden, Zwickau, Braunschweig, and Hanover.

While workers had previously agreed to around 50,000 job cuts through voluntary redundancy, management now anticipates the need for an additional 50,000 positions to be eliminated. Volkswagen's CEO, Oliver Blume, has emphasized that the company is in a "more than critical state" and that current measures are insufficient to restore competitiveness.

Blume stated, "We are oversized. That often makes us too slow and too complicated." The company's size has grown disproportionately over the decades as it sought to control more stages of production, including components and software, while acquiring rivals like Skoda, Porsche, SEAT, and Bugatti. Volkswagen has also lagged behind in transitioning to electric vehicles, coinciding with a sales decline in China, its former top market.

Blume warned that VW is currently producing about half a million vehicles in Europe each year in excess of demand. While closing German factories is considered a last resort, Blume believes they are "not currently profitable in the 2030s." Other automakers have criticized Germany's high operating costs, with Mercedes-Benz CEO Ola Källenius noting a 70% cost gap between its Hungarian and German operations.

Blume is expected to face resistance from Volkswagen's highly compensated workforce, which is among the best-paid in the automotive industry due to unions and works councils. The IG Metall union's head, Christiane Benner, expressed disappointment, stating that workers perceive the situation as another blow. During a meeting with workers in Wolfsburg on Tuesday, VW works council chair Daniela Cavallo acknowledged that trust in Blume and the executive board has been damaged but not irreparable.

The supervisory board, comprising shareholders and worker representatives, previously rejected a second round of cost-cutting proposals. The state of Lower Saxony, which owns 20% of VW, has also refused to support the plans, emphasizing the need to preserve the state's automotive industry. VW's CEO Blume unveiled the "Target Vision 2030" plan, aiming to halve the model lineup and reduce overheads, particularly in Germany.

The company will also lower its global production target from approximately 11 million vehicles in 2018 to 9 million annually. Blume cautioned that the coming years will be crucial in determining the viability of carmakers globally, stating that VW must prepare for worsening risks worldwide. He acknowledged that while VW achieved a 3.8% operating margin, it is insufficient to invest in new technologies, products, and maintain the company's sites.