Conflicts Emerge as Volkswagen Group Struggles to Cut Costs and Compete

Introduction

The Volkswagen Group is facing internal conflicts as it seeks to cut costs and remain competitive in the automotive industry. The company’s management, investors, controlling families, unions, and the German state are all vying for influence, leading to tensions within the organization.

Cost-Cutting Measures

In response to increased competition and a shrinking market, the VW Group is considering closing two German plants. CEO Oliver Blume acknowledges the need to adapt to a smaller market and states that the company is short of around 500,000 car sales per year. Overcapacity is a common issue among European car manufacturers, with VW estimating a loss of two million sales across Europe.

Unions’ Response

The announcement of potential plant closures has sparked anger among the automotive unions. Daniela Cavallo, chairwoman of the General Works Council, criticizes the management board and vows to fight against job losses and site closures. The unions argue that management’s wrong decisions, such as neglecting hybrid technology and affordable electric vehicles, have contributed to the decline in VW Group sales.

Political and Economic Challenges

Any car maker wanting to close plants in Europe faces political backlash, especially if the company is partially state-owned like the VW Group. The economic importance of the car industry in Europe adds to the complexity of the situation. The unions warn of potential job losses and draw parallels to the early 1990s when VW faced similar challenges.

Management’s Response

The VW Group aims to cut costs and investment to address its financial challenges. However, the process is slow, and costs actually rose in the first half of the year due to wage increases. The closure of the Audi plant in Brussels is seen as a positive step by financial markets, but the unions remain unsatisfied with the proposed solutions.

Digital Transformation and Partnerships

The VW Group’s traditional approach of innovation is proving challenging in the digital era. The failure of its in-house software division has led to investments in US EV maker Rivian and a partnership with Xpeng in China. While these investments have been praised by analysts, the unions criticize the allocation of funds that could have been used to secure local jobs.

Profitability and Competitiveness

While the VW Group faces challenges, some divisions within the company, such as Skoda, remain profitable. The overall profitability of the Brand Group Core, which includes VW, Skoda, and Seat/Cupra, is lower than Skoda’s individual profit margin. Bentley and Lamborghini’s strong profits have also helped sustain the Audi parent company.

Conclusion

The Volkswagen Group’s struggles reflect broader issues of declining German and European manufacturing competitiveness in the face of digital advancements. Resolving these challenges will require cooperation among all stakeholders, including concessions from the unions and a focus on profitability alongside job security.