The crisis of the Volkswagen car company and by extension the entire European industry is entering the next phase. The company will report third-quarter results on Wednesday and management will meet again with the IG Metall union, which is threatening the company with a strike over layoff plans. According to economist and electromobility expert Jan Staňek, the company’s profits will fall in the third quarter compared to last year.
“With high probability, a decline in Volkswagen’s profitability can be expected, as its car sales in China and Europe are falling year-on-year at a double-digit percentage rate. “Beijing is turning away from buying internal combustion cars of foreign brands, and sales of electric cars and hybrids have exceeded fifty percent of the market in recent months,” predicts an expert for SZ Byznys.
The events of the last few weeks match his skepticism. On Monday, VW management announced a plan to close three German factories, which is to happen for the first time in the company’s 87-year history. Analysts most often estimate that it could be races in Dresden, Kassel or Brunswick in Lower Saxony. Likewise, the company wants to cut employee salaries by 10 percent, according to the Financial Times. Opinions differ on how quickly these events will affect the Czech automotive industry and supply chains. But they have no doubt that it will happen.
“Closing factories in Germany definitely has an effect on Czech automotive, because a number of subcontractors are based here. At the same time, significant cost-saving measures can also be expected in the subsidiary Škoda Auto. “Volkswagen, including Škoda, is not yet coming up with attractive, affordable electric cars with cutting-edge software fast enough, and they are not able to jump on the global electromobility trend as well as Tesla or Chinese and Korean car companies,” says Staněk.
According to Petr Knap from the consulting company EY, on the other hand, the latest developments in the car industry crisis, which also includes the Czech Škoda, will not yet directly affect the Czech automotive industry.
“So far, I think that Škoda Auto is shielded from these problems and they do not directly affect it. However, the context and atmosphere in the VW concern may have some influence on it, and of course it may experience similar difficulties in the long term,” says automotive market expert Knap for Byznys SZ.
While the Czech Škodovka remains safe for now, according to the second expert, the European automotive crisis is affecting supply chains. As experts pointed out for Seznam Zprávy, Czech companies are also laying off workers due to the weakening German economy. In the last three months, 31 domestic employers reported mass layoffs to the Labor Office. Among them, for example, the manufacturer of parts for engines Brawe or the company Beneš a Lát specializing in products made of aluminum and plastic alloys.
The fight for a new model
“For some of the suppliers, the closing of Volkswagen’s factories may be a clear signal that the situation will not improve and that a response must be made. In the automotive industry, it is primarily a question of whether you will get work as a supplier on the next model, and you decide accordingly from the point of view of investments and capacities. The very closure of German factories and the transfer of production to other plants will increase the risk of lower volumes for other projects,” Knap interprets the situation.
According to the previous results and the upcoming outlook for the year 2024, problems of the company and its affiliated companies can be expected again. For the second quarter Volkswagen reported an operating profit of almost 5.5 billionwhich represents a decrease of almost 2.5 percent compared to the previous year. According to the company’s September 2024 outlook, which it will follow up on Wednesday, VW expects customer deliveries to total around 9 million vehicles this year, while VW delivered a quarter of a million more in 2023.
According to Knap, the Czech Republic must prepare for the fact that Germany will not pull the domestic economy up in the coming years.
”The direct impact of Volkswagen’s results on the Czech economy will be limited in the short term. However, the main signal is that even one of the world’s largest car manufacturers has major problems according to sales. It already gives a very clear message that the German economy will not pull us up for years to come, but will slow and dampen it. In particular, businesses connected to traditional automotive supply chains are at great risk,” the expert calculates the risks.
Where did the mistake happen?
The main cause of the current situation in the European automotive industry is seen by experts and the world media in China’s competition, especially in the electric car market. The Asian powerhouse is pushing European automakers out of the market, and Volkswagen is not the only company in the industry to consider significant cutbacks and layoffs.
Stellantis, which owns the Opel, Fiat and Peugeot brands in Europe, is under intense pressure from Italian politicians and unions to keep its oldest Fiat factory in Turin despite falling sales. writes the Financial Times.
Stellantis’ French assembly lines are moving to lower-cost countries such as Morocco and Turkey due to lower costs. Earlier this month, several hundred French workers protested outside the Paris motor show. Among them are people from supplier companies, including, for example, Bosch. The crisis affects the entire EU economy. The European automotive industry employs almost 14 million people and accounts for 7 percent of the Union’s GDP, according to a report by the former governor of the European Central Bank, Mario Draghi.
Manufacturers from the old continent are also afraid of the strictest emission limits set by the European Commission for 2025. From the first of January next year, every car driving on the roads of the Union will have to reduce its carbon footprint from this year’s 116 grams of CO2 to 93.6 grams per kilometer. If it fails to do so, the manufacturer will pay a fine of 95 euros, i.e. roughly 2,400 crowns for each extra gram of CO2 produced.
Due to the growing problems, the voices demanding to find a common solution from the industry are multiplying. One of them is the Draghi report mentioned above. But at the same time, cooperation is not going well even within one of the affected car companies, Volkswagen.
A strike on the horizon
The management of the company is also unsuccessfully trying to find common ground with the German trade unionists from the IG Metall union. They rebel against the planned steps of the VW management. What bothers the unions the most is that he wants to end the job security program. This has been in effect since 1994 and prevented the dismissal of employees until 2029. According to experts, none of the parties involved are in a deadlock. Experts hope that Wednesday’s meeting will lead to a shift on both sides and the unions will back down. Nothing else will benefit the company.
“Radial actions are needed. Although we understand that unions must primarily defend the interests of their members, in this case they will probably have to be prepared to make significant concessions in order to maintain reasonable production volumes in Germany,” says Knap. Staněk thinks the same.
“For myself, I consider it desirable that the unions show constructive cooperation if the concern is to be viable in the future,” he says.
However, the trade unions are unlikely to unblock the situation. Daniela Cavallo, the head of VW’s works council, told employees at the company’s main plant in Wolfsburg on Monday that VW boss Oliver Blume was “taking a huge risk,” according to the Financial Times. We will suspend negotiations and do what employees have to do when they fear for their existence.”
The Volkswagen Crisis: A Well-Oiled Machine or Just Rusty Gears?
Oh dear, folks! It seems Volkswagen is in a bit of a pickle—like a car stuck between a hedge and a wall. The saga continues as the company stands on the edge of a cliff, with its profits plummeting faster than my self-esteem at a family reunion. Yes, you guessed it: the upcoming third-quarter results are set to reflect a decline, which is as shocking as discovering that your favourite cheese actually contains calories.
What’s the latest word from the experts? Well, Jan Staňek, who might as well be holding a crystal ball on electromobility, predicts that downward spirals are on the horizon. The sales in China and Europe are diminishing at double-digit percentages. It’s like trying to sell ice cream in Antarctica; the demand just isn’t there. And while Beijing is swerving away from foreign internal combustion cars, electric vehicles are skyrocketing past the competition like a Tesla on a racetrack.
Factory Closures: A Titanic Decision
Hold onto your steering wheels, because Volkswagen’s management has announced plans to close three German factories. This is a historic moment—87 years and the first sign of closing the gates? Familiar. Now, which factories are being thrown under the bus? Analysts are placing bets on Dresden, Kassel, or Brunswick in Lower Saxony. Just remember, if you see their signs being taken down, you might need to grab the popcorn for this soap opera.
But it gets juicier! There’s talk of slashing employee salaries by 10 percent. My first thought? If only my bank account adjusted itself with such enthusiasm! According to the Financial Times, these drastic measures are a clear indicator that Volkswagen is grappling with its place in the electric car world. They might be slower than your uncle’s old Volkswagen Beetle trying to get up a steep hill!
The Czech Connection
So, what’s this mean for Czech companies? Experts like Knap suggest that while Škoda Auto seems to be in the clear for now, the tremors from Germany are already starting to rumble through the supply chains. It’s a bit like when you sneeze and your friend gets splattered with germs; just because you feel fine doesn’t mean they’re safe!
But wait! With 31 domestic employers recently reporting mass layoffs, it’s clear the automotive industry is taking a bumpy ride. With suppliers facing hard decisions, it’s apparent this might not come without consequences. That’s right, folks! The automotive industry isn’t just a joyride; it’s a rollercoaster of layoffs, budget cuts, and nail-biting negotiations.
Are We Preparing for a Strike?
And here we are, approaching the ever-exciting possibility of a strike. The IG Metall union isn’t in a cooperative mood and is looking to throw a wrench in Volkswagen’s plans. After all, who wouldn’t be upset if their job security was akin to a piñata at a birthday party—look great from the outside but ready for a hit at any time?
Daniela Cavallo, the head of VW’s works council, has added fuel to the fire by stating that the CEO is “taking a huge risk.” That’s a bit like saying jumping out of an airplane is a “leap of faith.” Sure, it’s thrilling until you realize that you forgot your parachute!
Where’s the Silver Lining?
So, what’s the moral of this story? If Volkswagen can grab the steering wheel and engage with the competition in the electric car market, they might just avoid disaster. As it stands, their current predicament serves as a wake-up call—a lesson that even giants can stumble and fall flat on their… tires. But let’s be hopeful! One day, we might see a Volkswagen that’s cleaner, greener, and as popular as a celebrity at a red carpet event.
In Conclusion
While many experts remain cautious, they also hint that future collaborations and creativity within the automotive industry could steer us towards safe roads again. Whether that happens is still a mystery, much like the whereabouts of my left sock after laundry day.
There you have it! Volkswagen and the broader European car industry are in a precarious position. Remember folks, keep your eyes on the road and adjust your mirrors regularly; you never know when a curveball might come your way.
The ongoing crisis facing Volkswagen, one of Europe’s automotive giants, is evolving into a more complex phase that threatens not only the company but also the broader European automotive sector. As the company prepares to release its third-quarter financial results on Wednesday, management plans to meet once more with the IG Metall union. The union has issued a warning, threatening to initiate strike action in response to the company’s proposed layoffs. Economist and expert in electromobility, Jan Staňek, anticipates a downturn in Volkswagen’s profitability, projecting a decline in car sales.
“With high probability, a decline in Volkswagen’s profitability can be expected, as its car sales in China and Europe are falling year-on-year at a double-digit percentage rate. The shift in consumer preferences in Beijing away from purchasing internal combustion vehicles from foreign manufacturers is notable, as sales of electric vehicles and hybrids have surged to exceed fifty percent in recent months,” predicts Staňek in an analysis for SZ Byznys.
Recent developments underscore the urgency of the situation. On Monday, VW management informed stakeholders of plans to shutter three of its factories in Germany, marking a historic first in the company’s illustrious 87-year existence. Analysts widely speculate that the targeted production sites could include the facilities in Dresden, Kassel, or Brunswick in Lower Saxony. Furthermore, according to reports from the Financial Times, there are proposals on the table to reduce employee salaries by ten percent as part of broader cost-cutting measures. While there is divergence in opinions regarding the timeline for these changes to impact the Czech automotive industry and its supply chains, experts agree that these effects are inevitable.
“Closing factories in Germany definitely has an effect on Czech automotive, because a number of subcontractors are based here. Significant cost-saving measures are also anticipated for Škoda Auto, a subsidiary of Volkswagen,” explains Staněk. He adds that both Volkswagen and Škoda have yet to produce attractive and competitively priced electric vehicles equipped with state-of-the-art software swiftly enough, hindering their ability to capitalize on the global electromobility boom dominated by Tesla as well as rising competitors from China and Korea.
According to Petr Knap from consulting firm EY, despite the turmoil engulfing Volkswagen, the immediate consequences for Škoda Auto and the Czech automotive industry are not yet evident. “Currently, Škoda Auto appears to be insulated from these challenges and is not experiencing direct repercussions. However, shifts in the Volkswagen Group’s environment and overall atmosphere may yield secondary impacts and could lead to similar struggles in the long run,” Knap elaborates for Byznys SZ.
While Škoda Auto currently remains unscathed, the broader European automotive crisis is undeniably affecting supply chains. Recent reports highlight that Czech firms are also facing workforce reductions amid the decline of the German economy. In just the last three months, 31 domestic employers have reported large-scale layoffs to the Labor Office, including notable companies like Brawe, a manufacturer of engine components, and Beneš a Lát, which specializes in aluminum and plastic alloys.
“For some of the suppliers, the closing of Volkswagen’s factories may be a clear signal that the situation will not improve and that a response must be made. In the automotive industry, securing supplier contracts on upcoming models is vital, dictating investment and capacity decisions. The planned closure of German factories and the redistribution of production could pose risks of reduced volumes for associated projects,” Knap interprets the evolving landscape of the industry.
According to past results and projections for 2024, recurring issues for Volkswagen and its affiliated entities are on the horizon. In its second-quarter report, Volkswagen announced an operating profit of nearly 5.5 billion euros, representing a nearly 2.5 percent decline compared to the previous year. The company’s outlook for September anticipates customer deliveries totaling around 9 million vehicles this year, a figure which pales in comparison to the previous year when VW delivered a quarter of a million more vehicles.
Knap further emphasizes the need for the Czech Republic to brace for challenges ahead, noting that it is unlikely Germany will invigorate the domestic economy in the coming years.
”The direct impact of Volkswagen’s results on the Czech economy will be limited in the short term. However, the main signal is that even one of the world’s largest car manufacturers has major problems according to sales. This sends a clear message that the German economy will not elevate us in the upcoming years, but rather will exert a dampening effect. Businesses associated with traditional automotive supply chains are particularly vulnerable,” Knap warns.
The current situation gripping the European automotive industry appears widely attributed by experts and international media to fierce competition from China, particularly within the electric vehicle segment. The rise of Asian manufacturers is encroaching on the market share traditionally held by European automakers, prompting companies like Volkswagen to consider drastic cutbacks and workforce reductions.
Other companies in the automotive sector, such as Stellantis, which owns brands like Opel, Fiat, and Peugeot, are also feeling the strain from declining sales. The company faces mounting pressure from Italian politicians and labor unions to keep its aging Fiat factory in Turin operational. Further compounding this issue, Stellantis is relocating its French assembly lines to lower-cost nations like Morocco and Turkey to cut expenses. Earlier this month, hundreds of French workers protested outside the Paris motor show in a demonstration against these relocations, including many from supplier firms, such as Bosch. This crisis reverberates throughout the entire EU economy, where the automotive sector supports almost 14 million jobs and constitutes 7 percent of the Union’s GDP, according to a comprehensive analysis by Mario Draghi, the former governor of the European Central Bank.
Amid these growing concerns, manufacturers in Europe are also anxious about the stringent emission regulations being imposed by the European Commission for 2025. Beginning January 1 next year, every vehicle on EU roads will be required to decrease its carbon emissions from 116 grams of CO2 to 93.6 grams per kilometer. Failure to comply will result in hefty fines for manufacturers, amounting to 95 euros for each gram of CO2 that exceeds the mandated limit.
As the issues pile up, calls for industry-wide collaboration are becoming louder, spurred by reports such as the one from Draghi. However, internal cooperation issues persist even within Volkswagen, one of the major players in the industry.
The management of the company is also unsuccessfully trying to find common ground with the German trade unionists from the IG Metall union. The unions are particularly agitated over the planned termination of the job security program that has been in place since 1994, which has prevented workers from facing layoffs until 2029. Compounding this situation, there is a sense of stalemate between the parties involved. Experts are hopeful that Wednesday’s meeting could facilitate dialogue and potentially ease union resistance to the company’s plans, as neither side stands to gain from prolonged strife.
“Radical actions are needed. Although we understand that unions must primarily defend the interests of their members, in this case they will likely have to be prepared to make significant concessions in order to maintain reasonable production volumes in Germany,” argues Knap. Staněk shares a similar sentiment, advocating for constructive cooperation from unions to secure the long-term viability of the automaker.
Reports indicate that union leaders may not be inclined to ease the situation. Daniela Cavallo, the head of VW’s works council, stated to employees at the primary Wolfsburg plant that VW CEO Oliver Blume is taking a “huge risk.” She added that the negotiations would be suspended as a result of the heightened tensions, warning employees that they may need to take action to safeguard their employment.
