Volkswagen does not give in on its restructuring project

Volkswagen persists and signs. “Our labor costs have become too high in Germany. This is why urgent measures are necessary to secure the future of Volkswagen”Oliver Blume, CEO, declared this Wednesday during a general meeting at the group’s headquarters in Wolfsburg, in central Germany.

The leader recalled the “gravity” of the situation. “New competitors are entering the market with unprecedented force. The pressure on prices is immense (…). At the same time, the European automobile market has shrunk. More supply, less demand, this forces us to act now”he insisted.

“The truth is that today we are not viable with our structures, our excess capacity and our costs”added in a press release Thomas Schäfer, director of the VW brand, the most in difficulty of the group although it represents a little more than half of sales.

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Long-standing argument

This is not the first time that the manufacturer’s management has highlighted its excessively high costs. Produce in Germany “clearly costs too much”asserted a few weeks ago in one of his leaflets distributed to employees of the main German sites. Electricity and labor costs pose a significant challenge across the Rhine, where the entire industry is suffering from the energy crisis linked to the war in Ukraine.

In this context, “VW has too many employees who produce too little”estimated automotive expert Stefan Bratzel at the end of September. Supporting example: the brand produced 2.52 million vehicles last year with 200,000 employees worldwide, including 120,000 in Germany. For comparison, the Japanese brand Toyota manufactured almost four times as many, or 9.5 million, with barely twice as many employees. VW’s profit margin, at 4.1% in 2023, is well below that of its main rivals.

Reconquer the Chinese market

At the same time, Volkswagen can no longer count, as in the boom years, on the huge Chinese market to boost its performance. The economic slowdown in China is slowing demand and therefore car purchases. However, this market usually represented around a third of the group’s sales worldwide. They were down 10% over the first nine months of the year.

At the same time, Chinese manufacturers, notably BYD, have quickly established their technological lead in electric vehicles. And thus eroded the market shares of European manufacturers, notably those of Volkswagen.

But Oliver Blume does not want to be defeated and has made reconquering the Chinese market one of his objectives. “We need to get back on track after many years of success”he declared this Wednesday, describing this market as “pearl of profitability”.

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Standoff with employees

In this context, Volkswagen management intends to implement a restructuring plan. This could include factory closures in Germany and tens of thousands of job losses, a first in its 87-year history. The manufacturer has ten production sites in the country and around 300,000 employees.

The fact remains that the representatives of the German giant’s employees, and in particular the powerful metallurgical union IG Metall, are up in arms against this desire of their management. The two parties have engaged in negotiations since the end of September, which have so far not found a solution. So much so that a first strike mobilized nearly 99,000 employees across the country on Monday according to IG Metall, out of the 120,000 German employees of the VW brand.

This first mobilization aimed to serve “warning”. The president of the works council actually threatened to amplify the social conflict. “Either we come together and start seriously considering compromises (…) or the board of directors sticks to its positions and the situation escalates”warned Daniela Cavallo to employees. A new negotiation session, the fourth, is scheduled for Monday, December 9.

(With AFP)