Written 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 revealed by company sources.
That has left some investors and analysts wondering whether it can deliver on its promises to cut production capacity and 35,000 jobs, changes that managers say are vital to the company’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 present – to explain it, according to two labor sources.
The agreement includes giving each plant its own cost-cutting target, with project teams of worker representatives and managers responsible for figuring out how to achieve that and boost productivity, which is measured by the number of cars produced per worker, according to two sources close to management. .
The administrative sources added that prominent figures from both sides will present progress reports at a quarterly meeting, stressing that if the interim cost reduction goals are not achieved, negotiations may need to start again.
It is a model that bears all the hallmarks of Volkswagen’s tradition of cooperation and compromise, rather than change imposed from above which would have brought more certainty, but was also at risk of damaging strikes.
Many questions remain, from how the automaker will lose so many workers without laying anyone off, to when the promised reduction in production capacity will occur, to what the long-term future holds for factories with empty halls.
That has left some investors disappointed, with Volkswagen shares trading below levels seen in October, before quarterly earnings fell.
“People don’t have the patience to invest in auto stocks that trade mostly on next year’s earnings, hoping the company will regain profitability after 3 to 5 years,” said Patrick Hamel, an auto analyst at UBS. The market expects them to talk about the fundamentals – what is the ultimate impact in 2025?”
The risks are high. While the Volkswagen group spans brands from luxury Audi to mass-market Seat and Skoda, its core namesake brand – the bulk of its German business – will account for more than half of its car sales in 2023.
Cutting capacity
During lengthy talks, the unions said the company raised the possibility of closing three to four factories. Volkswagen declined to give a specific number, but has repeatedly said it cannot rule out factory closures.
In the final agreement, the two sides agreed to end production in 2025 at a facility in Dresden, which employs 300 people, and in 2027 at the Osnabrück plant, which employs about 2,300 people, but they are committed to finding alternative uses for the sites, which could include new sites. Investors.
An all-electric plant in Zwickau will lose one production line, but will get new investment in the form of a recycling facility for used combustion and electric vehicles, scheduled to go into production from 2027, according to a business spokesman from the plant.
But new investments are conditional on meeting cost-cutting targets, as CFO Arno Antlitz explained in recent comments to investors seen by Reuters.
The remaining capacity reductions will come from cutting two production lines at the company’s headquarters in Wolfsburg.
It is not clear to investors and analysts how successful this approach will be in reducing fixed costs compared to closing factories completely. Volkswagen said the deal would save 15 billion euros ($15.6 billion) in the “medium term,” without elaborating. A spokesman declined to comment on any temporary goals.
“It’s hard to reconcile the very difficult narrative of getting to the tipping point and going all guns blazing with the agreement that was reached,” said Steven Reitman, an analyst at Bernstein Research who has followed Volkswagen for decades.
‘Weak and unaccountable’
It is also uncertain how the company will cut 35,000 jobs from its workforce. Volkswagen promised in 2016 to cut 30,000 jobs, but failed to reduce the overall size of the workforce – roughly 120,000 then and now – due to hiring in other areas.
A Labor spokesman said it hopes to achieve its goal by not replacing workers who retire, and offering plans for early or partial retirement, highlighting a clause in the deal that guarantees jobs until 2030 – a win for unions after Volkswagen scrapped a previous job guarantee agreement in September. – This means that any departure will be voluntary.
Moritz Kronenberger, portfolio manager at Volkswagen shareholder Union Investment, said that although the deal may look disappointing from the outside, it delivered deeper cuts than some expected given that unions and local politicians have veto power on Volkswagen’s supervisory board. .
“(CEO Oliver Bloom) stuck his neck out a lot, made big promises, and created a storm, both inside and outside the company,” Cronenberger said.
He added: “Blum remains the right CEO and is taking the right actions. But the company’s cost structure should look very different in a couple of years. Volkswagen has to show that it is armed for the future and can make attractive products.” : “Bloom has made himself vulnerable and accountable.”
($1 = 0.9602 euros)
(Reporting by Victoria Valdersi and Christina Ammann in Berlin; Editing by Mark Potter)