Volkswagen’s Crisis: The Butter and the Bread
Welcome, readers! Today we dive into the fascinating realm of Volkswagen, or as I like to call them, the company that seems to be stuck in a game of musical chairs, except the chairs are disappearing faster than your motivation on a Monday morning. Buckle up, because the ride might get bumpy!
The Heat is On!
So, according to Mark Simon Wolf from the Hersfeld newspaper, as of October 30, 2024, the once-mighty VW Group is feeling the pinch of realities that can only be described as a corporate “whoopsie daisy!” Layoffs, salary cuts, and factory closures are the order of the day for a conglomerate that was once the poster child for German engineering.
Winterkorn’s Nostalgia
Let’s rewind to 2014, when former VW boss Martin Winterkorn declared, “We won’t let the butter be taken away from our bread,” which is a lovely sentiment unless someone else just walked in with a better butter knife. Spoiler alert: Tesla was that someone, and they didn’t just bring butter; they brought a whole gourmet spread!
A Case of Wrong Turn on Electric Avenue
Fast forward to today, and VW appears to have taken the scenic route straight into the woods of perilous competition. You know, the kind where your GPS is shouting, “Recalculate!” but you’re still cruising along in your gas-guzzling behemoth while everyone else is zipping by in quiet, efficient electric cars. Oops!
Fratzscher Weighs In
Top economist Marcel Fratzscher calls this a case of VW being “a victim of its own success.” They’ve been as slow to adopt electric tech as your lovable granddad trying to figure out how to use FaceTime. And just like him, they didn’t notice the kids had moved on to TikTok while VW was still trying to get its head around Snapchat.
The Chinese Invasion
If that wasn’t enough, enter stage left: Chinese manufacturers! They’ve swooped in, making things even stickier for VW. While they’ve been busy building electric cars that are not just cheaper, but also popular—VW lost a staggering 931,000 sales volume in China since 2020. Talk about a pie chart that gives you indigestion!
Ouch, That’s Gotta Hurt!
According to reports, they’re now selling 500,000 fewer cars in Europe than pre-pandemic. But… they’ve still got that spiffy logo, right? Remind me again, does that keep the engine running?
Expenses and Exclamation Points!
The kicker? Manufacturing in Germany is now twice as expensive as in other places. And while VW executives, like CEO Oliver Blume, might be thinking it’s time for a raise (to a tune of €10.3 million!), the average worker is left fighting in the trenches of this cost-cutting battlefield. A little “let them eat cake,” anyone?
Asking for More?
Meanwhile, IG Metall is demanding a raise of around seven percent for employees, but as Fratzscher astutely remarks, that’s putting the cart before the horse—or should I say, ‘putting the EV before the charging station’? A round of applause for our economists, who can turn a profit forecast into an existential crisis in seconds flat!
Conclusion: The Golf vs. The Golf Cart
So where do we go from here? Volkswagen can only hope for a “new Golf moment,” which was their ticket out of financial purgatory back in the ‘70s. But here’s the twist—this time, their competition is no longer just the local guy down the street but a bunch of global heavyweights swooping in like it’s a WWE match. And let’s face it; the audience is on their feet! VW might need to rethink its strategy faster than you can say “fast track to bankruptcy.”
Final Thoughts
Remember, folks, in the automotive world, the game changes quicker than you can pop the hood of a new car, and without a solid plan, even the mightiest can become yesterday’s news. Keep your eyes on the roads, and your fingers crossed for VW, it’s a tough ride ahead!
Take care, and watch out for those electrifying competitors!
PressSplit
Volkswagen is grappling with significant layoffs, reductions in employee compensation, and the alarming prospect of factory closures. A retrospective examination indicates that the company’s previous strategic missteps are now exacting a heavy toll on its workforce.
Wolfsburg – Over the past several decades, the Volkswagen Group maintained a robust position across various markets. With commendable sales figures and an impressive grip on the market in Germany and much of Europe, its horizon seemed expansive. Internal narratives often glorified the company’s stature, reinforced by statements from board members reflecting confidence in their market power. Former VW CEO Martin Winterkorn once boasted in 2014 that with the backing of 40,000 researchers and developers, Volkswagen possessed a unique advantage that competitors could not hope to replicate. When addressing competition from the then seemingly nascent Tesla, he confidently declared, “We won’t let the butter be taken away from our bread.”
Volkswagen in crisis: plants will probably be closed and jobs cut
However, a decade later, the tone has drastically shifted. The reality is stark and alarming: Announcements of job cuts, plant closures and wage cuts at Volkswagen confirm that the once-celebrated VW Group is now confronting one of the most critical crises in its storied history.
The factors contributing to this turmoil are multifaceted and deeply interwoven, prominently featuring a noticeable erosion of market dominance and relentless price competition. Contrary to Winterkorn’s bold assertion, VW has found itself without its proverbial “butter on bread” as it was swiftly surpassed by Tesla. From a technological standpoint, Volkswagen drastically underestimated the innovative capabilities and market strategies employed by its American rival. As VW lingered in discussions about development, Tesla was already deploying a fleet of reliable electric vehicles on roads across the globe, with Elon Musk taking the lead.
Top economist Fratzscher: “VW is a victim of its own success” – and has missed new technology
According to Marcel Fratzscher, head of the German Institute for Economics in Berlin, Volkswagen’s current predicament is rooted in being “a victim of its own success.” He emphasizes that the company’s responses to advancements in new technologies, particularly electromobility, have been disappointingly sluggish.
Tesla has now ascended to a status previously enjoyed by Volkswagen in the combustion engine arena. This shift has been accentuated by Musk’s evolution into a global industry icon over the past decade. Moreover, Volkswagen’s public image has suffered due to the fallout from the diesel emissions scandal, particularly in the United States, culminating in approximately 32 billion euros spent on fines, legal fees, and settlements. “That massively damaged VW’s credibility,” Fratzscher argues.
VW disaster on the sales market in China: the competition’s electric cars are significantly cheaper
The impact on VW has been especially pronounced in China, the world’s largest electric vehicle market, where competitive pressure has ramped up significantly. Since 2020, Volkswagen has seen an order volume decline exceeding 931,000 units. Fratzscher noted, “The decision against the combustion engine and in favor of battery technology has been made a long time ago and was and is not made in Germany, but worldwide, especially in the large markets such as China and the USA.”
In retrospect, VW’s strategic misjudgment becomes evident as they were slow to react to the competitive pricing pressures emerging from the electric vehicle sector. In China, the market offers electric vehicles for as low as 14,000 euros, with prices in Europe dipping below 30,000 euros. In stark contrast, the entry price for VW’s ID series begins at a minimum of 36,900 euros, which pales in comparison to their combustion engine vehicles, the cheapest of which starts at around 21,500 euros. The competition, including Stellantis, has already introduced more affordable electric models, such as the soon-to-be-released C3 priced at 23,290 euros.
VW won’t have an electric car on the market until 2025 for less than 25,000 euros – enormous personnel and production costs
Volkswagen currently anticipates that it will not have an electric vehicle available on the market for under 25,000 euros until 2025. The argument that Chinese manufacturers have thrived due to substantial state subsidies cannot be viewed as the sole explanation for their success. The situation has been complicated further by recent political decisions. For instance, at the end of 2023, the German government withdrew the environmental bonus earlier than previously promised, exacerbating the perception of VW vehicles as premium products reserved for the upper middle class. Nevertheless, pinning the current crisis solely on the absence of the bonus for ten months is an oversimplification.
Experts point out that exorbitant personnel and production costs are significant contributors to VW’s plight. Compared to premium brands like BMW and Mercedes, VW’s salary structure is significantly more burdensome.
VW brand boss Schäfer: “German factories are twice as expensive as the competition”
VW brand chief Thomas Schäfer has identified inefficient productivity levels as a critical issue at its German facilities. He stated, “Our factory costs are currently 25 to 50 percent above what we had planned, meaning individual German plants are operating at twice the expense of their rivals.” The company’s ambition is to elevate the core VW Passenger Cars brand’s return on sales to 6.5 percent by 2026 to facilitate necessary investments in future-oriented technologies, electrification, and digitalization of its offerings.
For Daniela Cavallo, the works council head, the main cause of VW’s malaise is evident: “Volkswagen is suffering precisely from its German locations and German personnel costs.” She attributes the problem to the board’s failure to execute its responsibilities effectively. The list of complaints includes stalling project timelines and canceling beneficial proposals. Previously, former CEO Herbert Diess made cautious predictions regarding the company’s ability to maintain its leadership in the global automotive space over the next decade.
Volkswagen needs a new “Golf moment” – but the markets are competitive and the economy is weak
Looking ahead, some pundits regard the outlook as overly optimistic, despite VW’s forecast of achieving sales of 320 billion euros along with a profit of 18 billion euros for the year 2024. The current situation starkly contrasts the last major upheaval VW faced back in 1970, where they were compelled to phase out the iconic Beetle while grappling with financial losses. A notable reduction of 40,000 out of 130,000 employees ensued, with the subsequent launch of the Golf marking the resurgence of the brand over the course of nearly five decades. Unlike that era when China was a developing nation and the European automotive market was not yet saturated, the current landscape of 2024 presents far greater challenges.
