The fall of a giant. Volkswagen crisis and a wave of pessimism in Germany

Presentation of Volkswagen electrical cars with ID line. origin – Wikimedia Commons. licence – Attribution-ShareAlike 4.0 International. Author – Matti Blume

The Volkswagen brand, a legend of German automotive industry, is struggling with quite a few problems. The company's board announced massive redundancies and closure of unprofitable factories in Germany. Trade unions are preparing protests, and politicians are fighting to improve the situation. What are the reasons for specified a serious crisis of the cult brand, and how will it affect German society?

In early September, Volkswagen's management announced that it was introducing a fresh savings programme. Within this framework, the company withdraws the employment warrant for the employees of its plants and does not exclude the closure of unprofitable factories. This message caused a large stir among German society. For 30 years, Volkswagen's facilities had an agreement with trade unions, which said that a simplification in the number of jobs was possible only with the agreement of both parties. This agreement was to apply until 2029.

Information about the possible closure of factories is breaking a taboo. The Volkswagen plant in Germany has never been closed in history. For both residents and politicians, the brand is the pride of the nation. Germany created a company whose products were sold and wanted worldwide. Has their main exporter fallen to his knees?

The percentages are falling besides fast

Volkswagen introduced the erstwhile savings programme in the autumn of 2023, but it did not produce the assumed effects. Marce lacks sales of half a million cars a year. Volkswagen employs around 120 000 people, and a full of all brands of 300 000 people. The announced dismissals are expected to begin from mid-2025 and cover between 20 and 30,000 employees. The markup presently stands at 2.3%. (the desired score is 6.5%.). Why is that so important? The profits must be sufficiently advanced to let many investments to let the company to survive. The margin of 2% is simply a business failure.

Interestingly, another brands belonging to the company, specified as Skoda or Cupra, are doing very well. Although Volkswagen is the most crucial brand of the company, it has become a ball and chain. As it turns out, this is not a fresh problem. Previously, there were situations where production in the Czech Republic partially financed production in Germany.

Electrics go down?

Why is it so bad? The reasons for the current brand crisis can be found on many levels. The first is advanced labour costs. The crew of German plants is scaled. The employment rate is as advanced as 20-30 1000 compared to marketplace development. The company produces 2 million cars little than before the pandemic, and employment, according to the collective arrangement, remained unchanged. Another problem is the increase in energy costs. Currently, energy is even up to 5 times more costly than in China or the United States. China is simply a key outlet that generates large profits (they sale 40% of the cars produced). The marketplace there has changed significantly, as a consequence of which electrical cars have become increasingly popular, for which Volkswagen is not doing as well as with combustion cars.

Since 2015, the brand has been betting on electromobility. However, the German electricity marketplace collapsed after the subsidies for the acquisition of electrical cars were abolished. Sales fell by about 15%, profits did not come, and costs remained. Wolfsburg, Volkswagen's home plant, is presently only utilized in 50 percent. Worse for this brand, Germany's most popular electricians are now Tesla or Chinese models. The current situation would propose the request to loosen EU standards, but legislators do not think about slowing down. The European Union has announced further reductions in CO2 emissions since mid next year.

Political Chess

Volkswagen's structure was frequently called ossified. The company council and trade unions play a very crucial role. Moreover, the company is very politicized. The Land of Lower Saxony owns 20% of the shares that let the authorities to veto key decisions. The Prime Minister of the Land and the Coalition Minister of office sit on the Volkswagen Supervisory Board and influence how the company is managed. As you know, politicians have their interests that do not always match the interests of the company. It is, and in this case. Both the Prime Minister of Lower Saxony Stephan Weil (SPD) and the Minister of Economy Olaf Lies (SPD) expressed their hope that the closures would not happen. Moreover, they have the power to block specified a decision. They represent the SPD party, whose pillar are trade unions and industrial workers. It's worth keeping in head the national level. The closure of any mill in Germany could be a public shock, which would mean additional problems for Chancellor Olaf Scholz (SPD) and his government.

What's next? Tariff negotiations with trade unions on the fresh collective agreement begin. There are many possibilities. The unions want to introduce a four-day week of work, which would affect a 20% lower salary. This could improve the financial situation of the company. Currently, union representatives anticipate an increase of 7%, which is unfulfilled in the position of the crisis. They besides announce a wave of protests in November. There is speculation that it is the board that "bluffs" information about exemptions to enter negotiations from a better position. Experts say that the threats posed by the board are real, however, and their implementation is essential to improving the company's condition. If the factories were to close, it would most likely be smaller factories in Dresden or Osnabruck. Maja Zielińska