VW insists on tough cost-cutting measures for Q3

At VW, it is no longer just a question of achieving higher margin targets or better market capitalisation. The company has stated that the current situation is “serious” – and a decisive phase in the company’s history. It has been clear since this week that the Group will close a plant in Europe for the first time – the lights will go out at the Audi plant in Brussels at the end of February. And while two German plants were counted at the beginning of September, there is now talk of ‘at least three’ plants – so it is not just about smaller locations such as Dresden or Osnabrück, but also about large plants.

And in the midst of this dispute over the cost-cutting programme, VW has not only presented its business figures for the third quarter but has also begun a new round of wage negotiations with the trade union IG Metall. The figures are extremely poor: profit after tax fell by 64 per cent to 1.58 billion euros, while turnover remained almost constant with a drop of 0.5 per cent (78.5 billion euros). In the current year, turnover has even risen slightly to 237.3 billion euros, while the operating result has fallen by 21 per cent to 12.9 billion euros. Profitability is therefore falling, with the operating margin for the core VW Passenger Cars brand at just two per cent in Q3 – the target is 6.5 per cent in 2026.

Plant closures cause costs in the billions

VW justifies the drop in profits in the quarter with ‘considerable restructuring expenses’ totalling 2.2 billion euros. These are mainly severance payments, VW wants to reduce its workforce and such payments are also pending at Audi (see Brussels plant). Expenses totalling 1.2 billion euros were recorded at Audi alone in connection with the impending plant closure.

The ‘perfect storm’ that VW management warned of a few months ago is now becoming visible in the balance sheet. In the important Chinese market, the market shares of German manufacturers are falling, and former market leader VW has been hit particularly hard. At the same time, the market in Europe has not reached pre-coronavirus levels and, according to VW CFO Arno Antlitz, will not do so again: he does not expect to see more than 14 million vehicle sales on the continent in the long term, i.e. two million units fewer than before the pandemic. The pie is getting smaller – and new competitors are entering the market from China.

As a result, the core brand recorded a negative cash inflow of one billion euros in Q3. Neither in China nor in Europe can VW afford to raise prices in a competitive environment in order to generate further income. The only option is therefore to reduce the already high fixed costs. Antlitz referred to the Group brand Skoda, which ‘in the same environment’ generated an eight per cent return in the first three quarters. Skoda operates with a competitive cost base.

Although costs at the main plant in Wolfsburg are expected to be lower this year than in 2023, Antlitz did not give a figure. In any case, it is currently unclear whether the Board of Management will reassess the situation. Antlitz also stated that the original savings target of ten billion euros had to be revised upwards – but there is no exact figure here either. Either the CFO himself does not yet know this new savings target because it is still being finalised. Or the Group does not want to name any new savings targets in view of the now political discussion about the threat of plant closures and job losses and the collective bargaining negotiations.

“I am aware that the cuts being discussed at Volkswagen AG are tough,” says Antlitz. “But it is our joint responsibility to lead Volkswagen into a good and secure future.” There was also mention of “essential and painful decisions.” “We must position the brand competitively for the future and future generations,” said the CFO.

At least Antlitz can give the all-clear in one area: As orders for e-cars have almost doubled (to 170,000 vehicles) and demand for plug-in hybrids (such as the Passat and Tiguan) is also rising, Antlitz expressed confidence that Volkswagen will be able to meet the CO2 targets for 2025 – and thus avoid the costs of a CO2 pool or even fines to the EU.

IG Metall threatens ‘further escalation’

Savings yes, but no plant closures – this is how IG Metall’s position in the second round of collective bargaining can be summarised. Negotiating a “viable future concept for all sites” is the ‘ticket’ for further negotiations, said Thorsten Gröger, IG Metall’s chief negotiator. Otherwise, the union would have to ‘plan for further escalation’ – in other words, if VW insists on plant closures and massive job cuts. In view of Antlitz’s statements, however, this is hardly likely. Instead, strikes are likely in December, when the so-called peace obligation ends in the current round of negotiations.

The negotiations are centred on the company wage agreement at Volkswagen, which covers around 120,000 employees at the six large plants in western Germany. The three sites in Saxony; Zwickau, Dresden and Chemnitz are not covered by the agreement.

volkswagen-group.com, automobilwoche.de (Antlitz), linkedin.com (CO2-targets), zeit.de (tariff negotiations, all in German)