Volkswagen Faces Urgent Challenges to Transform its Brand

By Victoria Waldersee and Christina Amann

WOLFSBURG, Germany (Reuters) – Volkswagen has “one, maybe two” years to turn around its main car brand, according to its finance chief, as the company considers its first plant closures in Germany amidst threats of labor union strikes.

At a gathering of 25,000 workers, finance chief Arno Antlitz emphasized the need for collaboration between management and employees to cut spending in order to survive the shift to electric cars.

Antlitz highlighted that Europe’s car market has declined post-pandemic, leading to an estimated demand shortfall of about 500,000 cars, which is roughly equivalent to two production plants. “The market is just not there,” he stated, indicating he does not expect sales to bounce back anytime soon.

CEO Oliver Blume commented on falling profits in China’s market, reflecting broader challenges facing European car manufacturers like Stellantis and Renault.

Union leaders expressed their dissatisfaction, suggesting that Volkswagen’s management has significantly damaged trust. There is potential for strikes as union IG Metall maintained high wage demands for upcoming negotiations. Daniela Cavallo, head of the works council, criticized management’s spending priorities, notably a €5 billion software partnership with Rivian, questioning why that takes precedence over jobs.

The possibility of Toyota-style closures raises alarms for Germany’s economy, especially as it grapples with weak export demands and soaring costs. Chancellor Olaf Scholz reaffirmed the importance of Volkswagen’s workforce in talks with management, while Labour Minister Hubertus Heil reiterated the necessity for Germany to remain a strong player in the automotive sector.

Recent decisions, including ending an EV subsidy program, and decreasing business sentiment in the automotive sector highlight mounting pressures. Meanwhile, Volkswagen has publicly considered cutting jobs and ending job guarantees at six plants in their €10 billion cost-cutting strategy.

Volkswagen aims for a 6.5% profit margin by 2026, up from 2.3% in the first half of this year. Many employees fear for their jobs as uncertainties loom over the future of their positions in the wake of these proposed changes.

Blume’s move to confront unions contrasts his previous reputation as a cooperative leader. Some investors speculate that discussions of plant closures may serve as leverage against workforce commitments and salary negotiations.

Despite the pressures facing Volkswagen, unions argue that their production strategy is flawed and that delays in mass-market electric vehicles are liabilities. Analysts stress the need for rapid decision-making, a significant challenge for a company as complex as Volkswagen, which has a long history and intricate management structure.

The company also continues to deal with the fallout from the diesel emissions scandal as former CEO Martin Winterkorn recently appeared in court over the incident, nearly a decade after it was disclosed that Volkswagen had manipulated U.S. emissions tests.