“The legendary German automaker is losing power. Is Volkswagen facing bankruptcy?”, — write: www.epravda.com.ua
Autumn has become the most difficult period in the last decade for the German auto giant Volkswagen (VW). On September 3, a high-profile lawsuit began in Braunschweig: investors are suing VW over the “dieselgate” of 2015-2016. Then it turned out that the manufacturer underestimated the indicators of harmful emissions in diesel cars.
The other day, VW executives announced unprecedented measures: first in its 87-year history, the company can close factories in Germany and reduce staff.
Ignoring excess production capacity and falling competitiveness led to the crisis. Attempts by VW and the entire European auto industry to compete with Chinese brands and Tesla have failed in the production of electric cars, which is why the company is resorting to such radical steps.
Why does the Volkswagen crisis reflect the problems not only of the German economy, but also of the entire European Union auto industry? Why does Volkswagen have only one or two years to change the situation? How much does the car giant plan to save from closing factories and how are the unions going to prevent it?
“Dieselgate” was just the beginningIn 2015, thanks to a report by the US Environmental Protection Agency, the world learned that the famous German concern Volkswagen was engaged in large-scale industrial deception, underestimating the indicators of harmful emissions in cars with diesel engines. This caused a huge scandal that led to at least 30 billion euros in compensation costs and reputational problems for VW.
The day after that revelation, the head of the concern, Martin Winterkorn, resigned. Now in the trial in Braunschweig his accused in deliberately deceiving Volkswagen customers and shareholders, market manipulation and fraud. If found guilty, he faces up to ten years in prison.
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The revelation was preceded by VW’s desire to increase sales of cars in the US, especially diesel models. The concern positioned them as “clean diesels” (with lower emissions of harmful substances than competitors), but, as it turned out, they were not. The probable reason is that it is impossible in principle.
For nine years, there were almost no answers to the key questions: who made the decision to expand VW’s presence on the American market despite the non-compliance of the concern’s models with US environmental standards, and how software was installed in the cars that underestimated emissions measurements.
Winterkorn, who at the head of VW flaunted knowledge of all the nuances of production, could shed light on the details of the scandal. However, he insists that he knew nothing about the manipulations until the last moment, and he rejects the accusations against him.
The reason for the new crisis“Dieselgate” badly shook the reputation of VW, but even then it was not the only problem of the company. The giant from Wolfsburg suffered from high costs, low profitability and strict state regulation: the federal state of Lower Saxony owns 20% of the concern’s shares and can block key decisions.
In nine years, radically change the situation failed. VW resumed production after the pandemic better than others in the European Union. Two years ago, the giant began planning the construction of an electric vehicle plant in Germany worth 2 billion euros, calling this transition to electrification “the largest in the sector.”
However, when sales began to slow down, from the project refused: instead, the manufacturer plans to modify its plants in Zwickau and Wolfsburg.
Now the situation has worsened: competitors have displaced the concern from the Chinese market – the key one in the world. At the end of 2022, VW lost the title of the most popular car brand in China to the local electric car giant BYD. Market share of the VW Group in the Middle East fell from 19.3% in 2020 to 14.5% in 2023 – sales of models with internal combustion engines decreased.
Experts convincewhat is the lag – for a long time, because German electric cars are uncompetitive in China. Against this background, Volkswagen has been increasingly criticized for its failure over the years to take advantage of the opportunities offered by electric vehicles and hybrids.
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“Why did Volkswagen, unlike its Chinese competitors, start developing a mass electric car like the iconic VW Beetle so late? Why did they sleep through it all? This is just one of many management mistakes,” – was indignant the head of the VW trade union council, Daniela Cavallo.
As The Guardian explains, 2.5 million fewer cars are produced in the EU than five years ago. The electric vehicle market fell 69% in August compared to the same period in 2023 due to declining consumer confidence. Moreover, every fifth electric vehicle sold in the EU is produced in China.
According to car expert Ferdinand Dudenheffer, another painful issue for VW is the need to reduce the cost of car production in Germany. The profitability of the parent brand of the concern is 3.4%, but domestically, VW operates at a loss. “Foreign “daughters” subsidize the mother brand”, – says Dudenheffer.
Factory closures and trade union protestsAt the beginning of September, the financial director of VW Arno Antlitz statedthat Volkswagen has about a year to reboot to compete with China, and for the first time threatened to close the company’s plants in Germany.
This and the announcement of an early termination of the agreements on the guarantee of saving jobs until 2029, which increases the possibility of cuts at least 15,000 workers shocked the world media, but the employees of the main VW plant in Wolfsburg seem to have been ready for such a step.
“For some time, everything was in a state of calm – the calm before the storm. We knew for sure that something was being prepared,” – told one of the workers, emphasizing that there is a feeling of uncertainty and doom at the factory.
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To clarify the situation, on September 4, VW managers met with representatives of trade unions. They greeted them with an angry banner “We are Volkswagen, you are not.” “For 20 minutes, the noise from chanting and whistling prevented the top managers from speaking. They just sat at a long table with stony faces,” The Guardian wrote.
“We lack the sales of 500,000 cars, this is the production volume of two factories. This is not related to the quality of our cars or sales work. There is simply no market for them. The European market is 13% smaller than before the pandemic,” Antlitz explained.
According to him, in order to partially correct the situation, VW lowered car prices at the beginning of the year. However, this move came at a cost to the company hundreds of millions of euros in profit and undermined efforts to cut costs by more than 10 billion euros by 2026.
“There are fewer cars sold in Europe, and competitors from Asia are aggressively advancing on the market. The pie has become smaller, and the guests at the table have increased. We must act,” said Oliver Blume, the company’s chairman. protecting plant closure plan.
The head of the Cavallo trade union council, which represents the company’s 120,000 employees in Germany, promised “fierce resistance” to austerity plans. The plan for plant closures and layoffs must be approved by the concern’s supervisory board, in which most of the seats are occupied by labor officials.
Cavallo also accused Blume of favoring a software contract with US-based Rivian worth 5 billion euros. Experts do not rule out strikes – a rare phenomenon in the history of the company.
For decades, VW couldn’t lower production costs, says Dudenheffer. It has now become one of the causes of the biggest crisis for VW since the 1990s, adds Helena Visbert from the German Center Automotive Research. According to her, the closing of factories cannot be avoided because customers are not ready to pay a premium for made in Germany.
The importance of Volkswagen for Lower Saxony and the economy of Germany in general adds to the seriousness of the problem. “The automobile industry remains almost the most important industry in Germany, and in this industry VW is the alpha male. When a giant falters, everything falters,” economist Carsten Brzeski admitted.
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Experts agree that not all of VW’s problems are the concern itself. “We don’t have a problem with VW, we have a problem with Germany,” – admits Dudenheffer. According to him, VW electric cars are not ideal for consumers, but the unpredictable behavior of the German government turned out to be much more negative for the concern.
“It’s not Wolfsburg (where VW’s headquarters are located) but Berlin that has left electric car manufacturers in trouble,” he said of the situation when the government stopped paying bonuses for the purchase of electric cars in 2023 without warning.
Another big problem is the high costs of energy and labor in Germany, which are among the highest in the European Union.
The VW crisis has become another reason for criticism of the government ahead of the 2025 parliamentary elections. Responding to the scandal, Chancellor Olaf Scholz assuredwhich is in “close contact” with trade unions. The main goal, according to him, should be “saving jobs and factories.”
VW’s problems are a blow to the EU auto industryJob cuts and the likely closing of factories at Germany’s largest carmaker are one of the symptoms of the crisis in the EU’s largest economy.
“VW’s painful steps can be seen as part of the broader challenges facing the German economy, where disruptions in the logistics chain, reduced gas supplies from the Russian Federation and the loss of competitive advantages have harmed growth,” writes DW.
“Volkswagen represents the success of German industry over the past 90 years. However, this story shows us what four years of economic stagnation and ten years of deteriorating international competitiveness can do to an economy. They make investment less attractive,” said Brzeski.
“VW’s statement is a symptom of a broader disease of German industry, not an isolated case,” added Franziska Palmas, an economist at Capital Economics. She noted that industrial production in Germany in July was almost 10% below the level recorded at the beginning of 2023.
Capital Economics expects the share of the industrial sector in the country’s GDP to continue to decline in the next decade. However, despite the flow of negative news, Germany remains a key destination for international investment.
In the past 18 months, Google, Microsoft, Eli Lily, Amazon and BYD have announced plans to invest in Germany. In addition, the German government allocated about 20 billion euros in subsidies for the development of the semiconductor sector, supporting investments by chip manufacturers TSMC and Intel.
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“Biotechnologies, “green” technologies, AI and defense are rising sectors of the German economy, which the government can bet on. Doom and gloom are not at the forefront, there are ways for growth ahead,” said the director of the Berlin branch of the German Marshall Fund, Sudha David. Wilp.
Bloomberg addsthat the VW crisis confirms the “anemia” of the European auto industry. According to the agency, almost a third of the plants of the five largest car manufacturers in the European Union – BMW, Mercedes-Benz, Stellantis, Renault and VW – were underutilized in 2023. They produced less than half the cars of their capacity, so the plant closures will heighten concerns about a protracted downturn.
In addition, the threat of closures and layoffs looms large over not only VW. Annual sales of cars in the European Union are still lagging behind the previous level, which leaves production sites unfilled and puts thousands of jobs at risk.
“European manufacturers must look for opportunities to save in order to remain competitive. If the situation cannot be changed, it will hit the economy of the region: the automotive industry accounts for more than 7% of the GDP of the countries of the European Union and more than 13 million jobs.
Auto plants provide work for countless nearby businesses, from engine parts suppliers and trucking companies to a local bakery that delivers pastries to staff cafes,” Bloomberg summarizes.