HomeCar NewsVolkswagen Struggling - Considering To Shut Down Plants, USD 11 Billion Cost...

Volkswagen Struggling – Considering To Shut Down Plants, USD 11 Billion Cost Cutting

Volkswagen
Volkswagen

It’s a challenging road ahead for Volkswagen due to reduced car demand in Europe and intense competition from affordable Asian brands

Facing an existential crisis of sorts, Volkswagen has entered tough negotiations with its worker unions. According to Volkswagen CFO Arno Antlitz, the brand has just around a year or maybe two to achieve a turnaround. Other European car brands such as Stellantis and Renault are also facing a similar set of challenges.

Demand shrinks by 500,000 units

Addressing around 25,000 workers at the company’s Wolfsburg headquarters, Antlitz said that Europe’s car market has shrunk dramatically after the pandemic. In the case of Volkswagen, the company is facing a shortfall in demand of around 500,000 cars. This is close to the production capacity of two plants.

Antlitz said that the market no longer exists and there are no expectations of a recovery in sales. Only around a year or two is left for Volkswagen to make a comeback by adjusting output and implementing major cost cutting exercises. Volkswagen CEO Oliver Blume added that cheques from China won’t be available anymore. He was referring to Volkswagen’s falling profits in China, which is the brand’s biggest market.

Negotiations with unions

To achieve a revival and ensure a seamless transition to electric cars, Volkswagen has proposed a $11 billion cost cutting initiative. There are plans to shut down plants in Germany and terminate job guarantees at six VW plants. The cost cutting exercise will be applicable to all brands owned by Volkswagen such as Audi, Skoda and SEAT. As per the revival strategy, Volkswagen is targeting a profit margin of 6.5% by 2026. This will be a significant improvement over the 2.3% growth registered in the first half of 2024.

Although Volkswagen has clearly communicated all the problems being faced by the brand, the workers and unions have vowed to fight back. Union representative Thomas Knabel stated that there won’t be any talks unless the demand for plant closure is taken off the table. Unions allege that Volkswagen has been slow in making decisions and its production strategy has been inefficient.

It was also said that Volkswagen has not been able to produce a mass-market electric vehicle. A company worker named Axel Wenzlaff stated that people are afraid of losing their jobs and their houses. Wenzlaff said that he has been working with the company for the last 38 years.

Government intervention can help

Volkswagen is important for Germany and its troubles are already being deliberated at the government level. Chancellor Olaf Scholz has discussed the matter with the brand’s top management and also the works council. Labour Minister Hubertus Heil came out with his support, stating that Germany should maintain its leadership in automobiles. The cabinet has approved tax incentives to boost EV sales. It is likely that Social Democrats will also pressure the government to provide support on energy prices.

Meanwhile, investors are in favour of Volkswagen making tough decisions. Some investors opine that the prospect of plant closure can be a strategy to negotiate on ending job guarantees and cancelling wage increases.

The existential challenges come at a time when Volkswagen is already troubled by its past problems. It’s evident with former CEO Martin Winterkorn’s appearance in court this week in connection with the alleged dieselgate scandal. Around nine years back, Volkswagen had conceded that it had manipulated U.S. emissions tests.

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