Financial Insights That Matter
By Victoria Waldersee and Christina Amann
BERLIN (Reuters) – For all its talk of radical change, Volkswagen’s cost-cutting deal in Germany relies heavily on the automaker’s tradition of cooperation between managers and workers, according to details disclosed by company sources.
That has left some investors and analysts questioning whether it can deliver on promises to cut capacity and 35,000 jobs – changes that managers say are vital to the business’s survival amid weak demand and cheap Chinese competition.
The deal was struck days before Christmas, and since workers returned from the holidays unions have been holding meetings across German factories – some with board members in attendance – to explain it, according to two labour sources.
The agreement involves each factory being given its own cost reduction target, with project teams of labour representatives and managers responsible for figuring out how to deliver it and boost productivity, measured by the number of cars produced per worker, according to two sources close to management.
Senior figures from both sides will give progress reports at a quarterly meeting, the management sources added, emphasising that if interim cost reduction targets are not met, negotiations may need to begin again.
It’s a model that bears all the hallmarks of Volkswagen’s tradition of cooperation and compromise, rather than change imposed from the top that might have brought more certainty, but also have run the risk of damaging strikes.
Many questions remain, from how the carmaker will lose so many workers without laying anyone off, to when the promised production capacity cuts will happen, to what the long-term future holds for plants with empty halls.
That has left some investors underwhelmed, with Volkswagen shares trading below levels seen in October, before a plunge in quarterly profits.
“People don’t have the patience to invest in an auto stock that trades predominantly on next year’s earnings, with the hope that 3-5 years out, the company will restore its profitability,” said Patrick Hummel, auto analyst at UBS. “The market will expect them to talk about the building blocks – what is the bottom line impact in 2025?”
The stakes are high. While the Volkswagen group spans brands from the upmarket Audi to the mass-market SEAT and Skoda, its core namesake brand – the bulk of its German business – accounted for more than half of its vehicle sales in 2023.
CUTTING CAPACITY
During protracted talks, unions said the company raised the prospect of closing three to four factories. Volkswagen declined to give a specific figure, but said repeatedly it could not rule plant closures out.
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