Suddenly everything is on the table: Salary cuts and location closures are being negotiated at Volkswagen. The problems have been there for a long time. Where does the new urgency come from?
The belt is to be tightened at Volkswagen: plant closures, job cuts and salary cuts are on the table. The background is weak quarterly figures and increasing pressure from China.
The vehemence with which the company, but also politicians and the unions are suddenly negotiating is surprising. The group’s difficulties have been apparent for some time.
As part of the second round of collective bargaining with IG Metall, Volkswagen has now announced the first details of the savings plans. Negotiator and brand HR director Arne Meiswinkel announced VW’s demand to reduce collective wages by ten percent. Read more about this here.
All of these suggestions are driven by the declared savings goal: by 2026, costs for the core VW brand should be sustainably reduced by ten billion euros and thus increase returns. But the company is currently a long way from that.
As the “Handelsblatt” reports, citing a document that the VW board shared with works council boss Daniela Cavallo before the collective bargaining round, the proposed salary cuts alone are expected to bring in almost 800 million euros annually. If further bonus payments and surcharges were canceled, the total amount would be around two billion euros per year. In addition, a zero round of wage negotiations would have to be agreed upon in collective bargaining in 2025 and 2026.
In the same paper, the board also calculates the savings from possible plant closures. The plants in Osnabrück, Dresden, Emden and Zwickau are currently considered to be at risk. According to the “Handelsblatt” report, VW expects to save 600 million euros annually if the company stops production in Emden with 8,000 employees. The significantly smaller plant in Osnabrück has potential savings of around 130 million euros.
Specific plant closures were not initially discussed at the start of the second round of negotiations with IG Metall on Wednesday. In addition to the salary cuts, VW also told the union other possible measures such as cutting training positions, IG Metall negotiator Thorsten Gröger reported on Wednesday. “The list of poisons that Volkswagen presented to us is relatively long.”
The company’s demands read like a reaction to a sudden, deep crisis. The last quarterly figures also fit well into the argument. In the period from July to September, profits fell by 64 percent to 1.58 billion euros compared to the previous year. “This shows the urgent need for significant cost reductions and efficiency improvements,” said CFO Arno Antlitz.
So is there no crisis at all? Yes, but it is more complex than it seems in the current debate. And above all, the problems go back a long time. In recent years, Volkswagen has never managed to match the sales figures before the pandemic. In 2019, the company sold 10.97 million vehicles. The number fell to 8.26 million vehicles in 2022. In 2023 there were 9.24 million vehicles. The group is now expecting 9 million cars this year.
In addition, the margin at Volkswagen is relatively low. In the first nine months of 2024, the operating margin was 5.6 percent. In 2023 it was still 7 percent. But that is also less than the competition. For comparison: At BMW the operating margin in 2023 was 9.8 percent, at Mercedes-Benz it was 12.6 percent.
These numbers were known internally and externally. VW brand boss Thomas Schäfer warned in the summer: “The roof structure is on fire.” There are many reasons for this, but who is ultimately to blame for the difficult situation at VW is controversial.
Interview Between Time.news Editor and VW Expert
Editor: Good afternoon, and thank you for joining us today. We have with us Dr. Hannah Keller, an expert in automotive industry economics, to discuss the recent developments at Volkswagen. Dr. Keller, the recent news from VW indicates a drastic change in their strategy, including potential salary cuts and plant closures. What do you think has driven this sudden urgency?
Dr. Keller: Good afternoon! It’s a pleasure to be here. The urgency from Volkswagen seems to stem from a combination of declining quarterly profits and increased competitive pressure, particularly from Chinese manufacturers. Their latest quarterly results showed a staggering 64% drop in profits, which undoubtedly raised alarm bells within the company and its stakeholders.
Editor: That’s a significant drop. The article mentions that VW is negotiating to reduce collective wages by ten percent. How significant would this be for both employees and the company?
Dr. Keller: A ten percent wage reduction is not trivial. For the employees, it represents a tangible decrease in their livelihoods, and it could lead to decreased morale and trust in management. However, from VW’s perspective, this is a strategic move aimed at saving nearly 800 million euros annually, which, coupled with other measures like cutting bonuses and surcharges, could reach up to two billion euros. This is all part of their larger goal to reduce core costs by ten billion euros by 2026.
Editor: The negotiations seem to involve various measures beyond just salary cuts, including potential plant closures. Can you elaborate on how these closures could affect the overall strategy of Volkswagen?
Dr. Keller: Certainly. The closure of plants is a significant part of VW’s cost-cutting strategy. From what we’ve seen, plants in locations like Emden and Osnabrück are considered at risk. The potential annual savings from shutting down these operations could amount to as much as 600 million euros. Closures not only contribute directly to cost savings but may also reshape VW’s operational footprint, making it leaner and more competitive in a tough market.
Editor: The term “list of poisons” used by IG Metall’s negotiator Thorsten Gröger is quite striking. It suggests that Volkswagen is willing to consider severe measures. What does this indicate about the company’s internal challenges?
Dr. Keller: Yes, that phrase indicates a level of desperation or urgency within the company. It reflects a robust acknowledgment of the difficulties that VW is facing. The scope of measures, including cuts to training positions and possible layoffs, signals that they are experiencing a deep crisis that demands immediate action, which is unusual for a company of VW’s stature.
Editor: Volkswagen has been a giant in the automotive industry for decades. In light of these current challenges, do you think they can rebound, or is this indicative of a longer-term issue?
Dr. Keller: Recovery is certainly possible, but it will depend on how effectively they implement these changes. The swift actions suggest that they are aware of the need for transformation. However, to regain profitability, VW will need to innovate, especially in the electric vehicle market where competition is intensifying. They will need to align their operational costs with market demands while maintaining a focus on quality and sustainability that consumers expect from such a well-established brand.
Editor: It sounds like a complex road ahead. Lastly, what message do you think VW’s actions communicate to its workforce and the market as a whole?
Dr. Keller: VW’s moves signal to the workforce that the company is facing serious challenges and is willing to take drastic steps to ensure its survival. While it may cause anxiety among employees, it also shows a commitment to finding solutions proactively. For the market, it indicates that VW recognizes the competitive landscape is changing quickly and that it must adapt accordingly. Investors and industry watchers will be keeping a close eye on how these negotiations unfold and their impact on VW’s long-term strategy.
Editor: Thank you, Dr. Keller, for your insights. The situation at Volkswagen is certainly one to watch closely as it unfolds.
Dr. Keller: Thank you for having me. It was a pleasure discussing these critical developments.