VW Tiguan and Teron SUV automobiles on the assembly line at a factory in Wolfsburg, Germany. (Kriztian Bocci/Bloomberg)
key takeaways:
- Volkswagen CEO Oliver Blume is seeking the supervisory board’s support for a sweeping restructuring that could cut 100,000 jobs and close four German plants.
- The overhaul reflects growing pressure from Chinese competitors, higher German production costs and declining profits, with analysts warning that structural challenges threaten Volkswagen’s competitiveness.
- Unions and political stakeholders are expected to oppose deep cuts, leading to a compromise focused on voluntary cuts, lean models and continued negotiations on restructuring plans.
Volkswagen AG’s Oliver Blume has spent nearly four years at Europe’s biggest carmaker scrambling for savings. On July 9, the CEO will try to convince his rival factions that more is needed.
Gathering at its Wolfsburg headquarters, the supervisory board will consider the CEO’s plan for a sweeping restructuring that could ultimately eliminate more than 100,000 jobs and close four German factories, according to people familiar with the discussions.
These proposals constitute one of the largest changes in Volkswagen’s post-war history. They set Bloom on a collision course with labor unions and politicians who have unparalleled influence over protecting jobs. Management is arguing that the automaker needs an overhaul, including carving out the VW brand, to face growing competition from Chinese rivals led by BYD Co.
“The German auto industry is in restructuring mode,” UBS analyst Patrick Hummel said in a recent note. “In view of declining sales in China and the increasing market share of Chinese carmakers in Europe, companies need to step up their efforts.”
The risks are personal as well as corporate. Bloom’s predecessor Herbert Dyess lost his job after repeatedly clashing with powerful internal factions over the pace of reform, leading to a series of executive exits. After securing significant concessions on job cuts in 2024, mounting pressure means VW is still too bloated, expensive and slow to ensure a profitable future.
VW’s market valuation has fallen to a decade low of 38.6 billion euros ($44.1 billion), less than a fifth of global rival Toyota Motor Corp. The pair used to compete for the global vehicle sales crown, although until recently the Japanese company has taken the lead with sales of more than 11 million last year, while its European rival sold 9 million.
There is significant potential in driving efficiency in Germany. According to Jefferies analysts led by Philippe Houchois, average plant costs in Portugal, Romania and Spain are about a third of those in Germany, highlighting “above average scope for cost reduction”.
In Bloom’s view, the factors forcing the overhaul are structural rather than cyclical, with competition from China set to intensify domestically as well as in Europe. China remains the largest single country market for vehicle sales, but profits have declined. Efforts to introduce new models developed in collaboration with local partners are facing decline in the market.
In the US, where Volkswagen has long struggled with slow sales, officials expect President Donald Trump’s import tariffs to remain in place despite the change in the White House, according to people familiar with the matter. The fear is that options for orderly restructuring are fading before market forces impose even more drastic alternatives.
VW strategists believe Chinese manufacturers such as BYD and Chery Automobile Co. are making deeper inroads into Europe than headline sales figures suggest. Before expanding further, they are quickly expanding into different countries such as the UK. Internally, a majority of senior managers recently described Volkswagen as facing an existential threat, according to people familiar with the findings of the internal survey.
Yet VW’s unique set of power structures, combined with broad voting rights for labor leaders and the state of Lower Saxony, has meant piecemeal progress on strategic decisions at Germany’s most important industrial company. In particular, VW’s 2024 agreement with workers rejects mandatory cuts and limits cuts to no more than 35,000 positions at the VW brand in Germany by 2030.
Following last month’s revelations about pressure to lay off more workers and close plants in Germany, VW’s works council sent out a lengthy post on its intranet explaining how the 2024 agreement cannot be revoked.
So far, this system has promoted stability and a long-term industrial base. Especially in Germany, VW plants are the economic foundation for cities that guarantee industrial security. The closure would threaten the social bargain that has been based on VW for decades.
“VW’s governance is like Germany Inc. in miniature,” said Oliver Falk, an economics professor at the University of Munich. “It embodies the corporatist bargaining at the heart of the German model: institutions shaped by consensus between large companies, unions, and the government.”
The pressure for change has become so intense that management has considered legal options to break this hold.
One possibility discussed internally includes garnering shareholder support through an extraordinary general meeting, according to people familiar with the matter. The unprecedented move could be necessary if the supervisory board rejects key parts of the restructuring, the people said.
In addition to further job cuts and further capacity reductions, aiming to close the Zwickau, Emden, Hanover and Neckarsulm sites, Blume wants to scale back duplication, overlap and internal fiefdoms. In internal meetings, he has presented an eight-point plan that calls for fewer parallel projects, sharper choices on technology spending and more power for regional managers.
One agenda point that the board can quickly agree on is the reduction in the number of models and variants. VW currently offers about 150. Reducing it to 100 or so would yield savings and cut down on overlap, according to a person familiar with the plans.
Some changes are underway. Porsche AG CEO Michael Leiters and Audi boss Gernot Doellner are among the executives working on their own turnaround plans, details of which are expected later this year. For VW’s brand chiefs, the message is clear: scale will no longer be enough to cover up weak performance.
The likely outcome is a compromise that softens the most serious options. Workers have already signed up for about 50,000 cuts at the Audi and Porsche brands as well as Volkswagen, including at the Cariad software unit. The unions will press management to fix products, software and decision-making processes before agreeing to more cuts to improve competitiveness.
Cox Fleet’s Kevin Clark discusses how fleets must rethink their maintenance strategies to remain efficient and flexible. Tune in by going above or RoadSigns.ttnews.com.
This points to voluntary downsizing, less investment, fewer management layers and production shifts rather than immediate plant closures.
If Bloom can’t force that break, Volkswagen is unlikely to face an immediate crisis. The threat is slower and more corrosive: Europe’s biggest carmaker keeps defending jobs, factories and brands that struggle to earn their cost of capital, while Chinese rivals take up much of the growth VW once expected.
Moritz Schularich, head of the Kiel Institute for the World Economy, has warned that VW’s existence as an independent company could eventually come into question.
“I think the automotive industry, mobility and autonomous driving are areas where we want to continue to play a role,” Schulrick said in emailed comments to Bloomberg. “But whether VW is the right horse for us to bet on, I doubt it very much.”
