‘Decades of Structural Problems’ Led to Crisis

• Volkswagen CEO Oliver Blume says costs in Germany must be “massively reduced.”
• VW Group profits fell 63.7% in Q3 2024 when sales decreased by 8.3%.
• Pay cuts are planned to avoid closing factories.

To say Volkswagen is going through a rough patch would be an understatement. The Group’s latest numbers look terrible: Earnings after tax collapsed by 63.7% in the third quarter when sales dropped by 8.3%. Through this year’s first nine months, profits are down 30.7% and sales are 4.4% lower. CEO Oliver Blume believes ghosts of the past are haunting the German automotive conglomerate, culminating with the ongoing hurdles.

Speaking with the Sunday edition of the German newspaper Bild, Blume blamed “decades-long structural problems at VW” for the sales slump in Europe and the poor results in China. The 56-year-old executive who is also Porsche’s CEO believes the world’s second-largest automaker needs to drastically cut costs to get back into shape.

“Our labor costs here [in Germany], for example, are often more than twice as high as the average for our European locations. There is also a need for action in our development and sales costs and in other cost areas when compared to our competitors. The goal for cost and capacity adjustment has been set.”

The use of “decades” is interesting since it means VW has been having problems since the Piech era, which some believe represented the golden years of the Group. The nasty Dieselgate scandal certainly put pressure on the company. In early 2020, VW said the messy debacle cost the company around €31.3 billion. At current exchange rates, that works out to approximately $34 billion. Software gremlins of the Golf 8 and ID.3 along with related products also hurt the Group’s image in recent years.

Oliver Blume’s cost-cutting plan is echoed by Gunnar Kilian, VW’s man in charge of human resources. The HR boss told Bild the workforce must be “willing to accept cuts” as the company must “roll up its sleeves and tackle the restructuring quickly.” Consequently, the union’s demand for a 7% pay rise has been rejected. Not only that but the plan is to reduce pay by 10%. A new round of collective bargaining is set for November 21.

Bild has learned VW plans to reduce indirect personnel costs by slashing holiday bonuses and even discounts on company cars. Loyalty bonuses worth up to three months’ salary are in danger, while the number of trainees is expected to decrease. Another target is to maximize the “demographic curve” by not filing positions when elder workers retire. Early retirement packages are also planned. Elsewhere, a spokesperson said: “Material and product costs are to be optimized, fixed and production costs are to be reduced.”

Bild mentions VW has set aside about €900 million (nearly $1 billion) to implement measures to reduce costs that will hopefully turn things around. Whether factories will be closed remains to be seen, but with increasing competition from China, the Group surely has its work cut out for it.