There's been quite a rumble in Wolfsburg! After a management meeting, Volkswagen cancels the 30-year-old works council agreement on job security. The reason: urgently needed cost-cutting measures. "In the current situation, plant closures of vehicle production and component sites can no longer be ruled out without rapid countermeasures," it continues.
Naturally, this immediately called the powerful works council and the trade union into action. The head of the Volkswagen Works Council, Daniela Cavallo, immediately went on the offensive. The plans are "an attack on our jobs, sites and collective agreements", she explained in a special edition of the Works Council newspaper. "We will fiercely defend ourselves against this," said Cavallo. "With me, there will be no VW site closures!" Thorsten Gröger, IG Metall district manager for Lower Saxony, spoke of an "irresponsible plan" that "shakes the foundations of Volkswagen".
Head of the Works Council Daniela Cavallo
But what exactly is going on in Wolfsburg?
At the end of 2023, Volkswagen adopted an extensive cost-cutting programme to increase the profitability of the core VW brand. Despite these measures, it was recently announced that the targets set could not be achieved. This led to discussions about compulsory redundancies and plant closures, which are not easy to implement due to the strong employee representation and the involvement of the state of Lower Saxony as a shareholder.
Both sides are aware that not all proposals can be realised. Nevertheless, it is clear that changes are necessary. However, it is also clear that the crisis cannot be blamed unilaterally on "the combustion engines" or "the electric cars".
The VW Group headquarters in Wolfsburg
VW builds too many cars
A central problem is the overcapacity in the plants. Volkswagen is currently unable to sell up to 500,000 cars per year. Sales in China, one of VW's most important markets, are weakening, and in Europe there is a reluctance to make expensive purchases. This is leading to under-utilisation of the plants, which means various unattractive options for the management.
One option would be to reduce production or temporarily shut down plants. Another would be to produce the cars anyway and push them onto the market at a loss, which would further reduce the already low return and lower resale values.
Weakening electric market
The electric car business poses a further challenge. After the emissions scandal nine years ago, Volkswagen made a fundamental change and launched a battery-electric platform on the market. However, the first models were introduced too early, which permanently damaged the reputation of the ID models. In particular, the ID.3 before the facelift was considered cheap on the inside (similar to the Golf 8) and had a very arbitrary design. The current VW Head of Design, Andreas Mindt, is to restore more familiar shapes with a touch of nostalgia.
Although the worst problems have now been resolved, the focus on electric cars initiated by former Group CEO Herbert Diess has not yet paid off. Demand collapsed after the end of state support, which shows that reliable framework conditions are necessary.
Weak return on sales
Another problem is the low return on sales. In the Tagesthemen news programme on 4 September, it was reported that Volkswagen only achieves a return on sales of one percent in some cases. This is not only low compared to the competition, but also considerably restricts the company's economic room for manoeuvre. It lacks the money for necessary investments and the flexibility to react to market changes. One example of this is the discontinuation of state purchase subsidies for electric cars in Germany at the end of 2023, which led to a slump in demand.
China is becoming a problem
In China, one of Volkswagen's most important markets, the company is also experiencing difficulties. Although Volkswagen still plays a significant role there, its market share is shrinking. The share of electric cars in China has risen sharply in recent years, and Volkswagen is struggling to cater to the tastes of Chinese customers. Chinese brands have caught up massively in this area. In addition, the Communist Party supports the domestic car industry, which makes competition more difficult for foreign manufacturers.
In order to overcome these challenges, Volkswagen will have to embark on a tough cost-cutting programme, which will also be painful for the workforce. The company can hope that the economy will pick up again next year, but the stricter EU fleet limits from 2025 will literally force manufacturers to approve highly electrified vehicles at all costs.
According to calculations by Automobilwoche, VW would have to reduce petrol car sales in Europe by 14 per cent, but at the same time register 15 per cent more pure electric cars in order to comply with the 94 g/km limit. Otherwise, there is a risk of high fines per vehicle.
There are also other problems. Although the software in the vehicles has improved, VW is still finding it difficult to compete with rivals such as Android Automotive. In addition, Volkswagen must also succeed with electric cars in China. If this does not succeed, all other endeavours will be in vain.
The question remains as to what the powerful works council and the trade union will do now. Protests and even strikes are to be expected, which in turn could stand in the way of consolidating the brand. However, the employees' representatives cannot and will not simply accept these cost-cutting plans. It remains exciting in Wolfburg.
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Sources: Tagesthemen, Automobilwoche, Volkswagen