"The board has failed": Unions vs managers as VW battles for profits

The barely concealed conflicts between the many competing forces acting on the Volkswagen Group – from management, investors and the Porsche/Piëch controlling families to the unions and the German state – have moved centre stage after the automotive giant signalled it urgently needed to cut costs in order to compete in a new era. The VW Group is considering shutting two German plants as part of a plan to become fitter in the face of increased competition from new players, including those from China. "The pie has become smaller, and we have more guests at the table," VW Group CEO Oliver Blume told German newspaper Bild am Sonntag at the weekend. The announcement has sparked fury among the automotive unions, who are deeply embedded within the VW Group. “The management board has failed. The result is an attack on our jobs, sites and collective agreements,” Daniela Cavallo, chairwoman of the General Works Council said in an interview with the IG Metall union last week. She vowed to fight them: “With us, there will be no site closures.” Cavallo sits on the VW Group’s powerful supervisory board and is widely credited with orchestrating the ousting of Blume’s predecessor, Herbert Diess. Blume was seen as a moderating force, able to unite the company’s business goals with those of its workforce, but now he too finds himself at odds with the unions. The Volkswagen Group is the world’s second largest vehicle manufacturer, after Toyota, but it is trying to 'right-size' to adjust to a smaller market. “We are short of around 500,000 car sales a year, the equivalent of around two plants,” group head of finance Arno Antliz said in a speech to staff at VW’s Wolfsburg headquarters last week. “That has nothing to do with our products or poor sales performance. The market is simply no longer there." Overcapacity is a problem affecting most car makers building in Europe after regional sales failed to return to pre-Covid levels. VW estimates that two million sales have been lost across Europe, with little chance of them returning. However, such is the economic importance of the car industry in Europe that any car maker wanting to close plants to adjust to the new reality risks unleashing a political hurricane, particularly if, like the VW Group, a portion of the company is state-owned. Dresden and Osnabrück are two assembly plants that VW is reportedly considering for closure. The unions argue that shrinking VW Group sales are nothing to do with wider market decline but instead rest with management. “Many wrong decisions have been made in recent years. This is now coming back to haunt us,” Cavallo said. She cited Diess’s decision not to invest in hybrid technology. “[He] thought hybrids were a niche market that would quickly become obsolete. The opposite is now the case – and we are largely left empty-handed.” Cavallo also criticised Diess for the early problems with the MEB-platformed electric cars – starting with the VW ID 3 – and scoffed at a now-abandoned plan to develop cheap EVs with the Renault Group to be built by Dacia. “We are still completely lacking affordable BEVs,” she said. The Volkswagen Group’s early gamble to build EVs on a dedicated electric platform – in advance of all its rivals – has been thwarted by slower than expected electric take-up. The company’s business-minded response to its problems is to cut costs and investment. The new Tiguan-sized “A-main” electric SUV originally scheduled to be built from 2026 in VW’s flagship plant at Wolfsburg has been cancelled. The future of the much-delayed VW Trinity model, showcasing a brand-new EV platform and currently planned for production at the Zwickau ID plant, is uncertain. Management is working to cut fixed costs but it’s a slow process. A hiring freeze and an early retirement programme are being used to chip away at the company’s 684,025-strong headcount. However, costs actually rose in the first half of this year, fuelled by wage rises. “We are not happy with the performance right now,” Antlitz told investors on the company’s second-quarter earnings call on 1 August, citing the “huge” wage increase in Germany last year. Nevertheless, the VW Group did announce it was planning to close its Audi plant in Brussels, Belgium. This gave hope to the financial markets, who have long been exasperated by the company’s inability to keep a lid on costs. “VW is finally willing to address its European cost problem,” Tim Rokossa, head of research at Deutsche Bank, wrote in a note to investors. However, VW’s unions are unimpressed with the proposed solutions. “We will not tolerate salami-slicing tactics in which the executive board calls locations into question, attacks our in-house wage agreements and no longer recognises the equal importance of profitability and job security,” Cavallo said, taking aim at “profit Rambos” on the board. Cavallo raised the spectre of the early 1990s “when jobs were in acute danger and in the end only the four-day week with loss of pay could save us”. Back then, VW was facing many of the same problems: weak economy, increased competition from Asia (then Japan and Korea, now China) and market saturation. The VW Group has traditionally innovated its way out of its economic problems, but that route is proving tough in a digital era. The failure of VW’s in-house software division, Cariad, which was expensively created in 2020, was all but admitted by the company with the announcement that it would invest $5 billion into US EV maker Rivian and specifically its software. Blume said the plan is to use Rivian’s advanced software-defined architecture for the SSP electric platform that VW will use to underpin all electric models at some point in the future, including Trinity. Meanwhile in China, VW has hooked up with Xpeng to use its electric platforms to fast-track EV development in a market that’s fast outpacing VW’s typical cycles. Both investments have been praised by analysts worried that VW wasn’t keeping pace with digital progress. However, the Rivian investment in particular has infuriated the unions, who see it as money that could have been invested into securing local jobs. “Can we be sure that this won’t be the next billion-euro grave?” the Financial Times reported Cavallo as saying. Much of the union-driven drama is centred around Germany and the group’s core VW brand, which is responsible for the bulk of German jobs. Other divisions, meanwhile, are proving more profitable. Skoda, for example, was back at its money-making best in the first half of the year with a profit margin of 8.7%, while the overall ‘Brand Group Core’ it sits in alongside VW and Seat/Cupra managed only 5.0%. Strong profits at Bentley and Lamborghini kept their Audi parent afloat in the first half as it worked through a shortage of V6 and V8 engines. The Volkswagen Group’s travails are bound up in the wider story of falling German and European manufacturing competitiveness in a period when legacy technologies are being usurped by digital equivalents. Any successful resolution will require the cooperation of all participants, meaning the unions may need to concede some points to the 'profit Rambos'.

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"The board has failed": Unions vs managers as VW battles for profits

Conflicts in and around the Volkswagen Group have moved into the spotlight

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"The board has failed": Unions vs managers as VW battles for profits

Conflicts in and around the Volkswagen Group have moved into the spotlight

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Latest car reviews

Top manufacturers

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Legal bits

About Autocar