Volkswagen is facing significant challenges as it prepares for a major restructuring that may involve closing three plants in Germany and laying off tens of thousands of employees.
The company has issued two profit warnings in 2024, indicating a decline in its financial performance. The latest forecast shows a Group margin of only 5.6 percent for the upcoming year, down from an earlier estimate of 6.5 to 7 percent.
The underperformance of the VW brand is a major factor in this downturn, with a return on sales of just 2.3 percent in the first half of the year, the lowest among the Group's twelve brands. In comparison to competitors like Toyota, VW's inefficiencies are evident, with higher labor costs and a larger workforce required to manufacture fewer vehicles.
VW is considering drastic measures such as closing smaller plants like Osnabrück and Dresden. Labor relations are also strained, with negotiations between management and the IG Metall union becoming more intense. The union is demanding a 7 percent wage increase, while management is proposing a general wage cut of over 10 percent. The cancellation of a long-standing job guarantee has added to the uncertainty among VW employees.
The automotive industry as a whole is facing challenges, with sales not recovering to pre-pandemic levels. VW is aiming to implement cost-saving measures to achieve a targeted return on sales of 6.5 percent by 2026. However, the company is also grappling with internal challenges related to digitalization and the transition to electric mobility.
The outcome of ongoing negotiations and VW's ability to address structural problems and improve productivity will be crucial for its future success.