The Volkswagen system threatens to break up

"We are not viable" - The Volkswagen system threatens to break up

The impending job cuts are the harbinger of impending decline at VW: for far too long, the workforce and management of Germany's most important company have made themselves comfortable in old habits. Wolfsburg is fighting for survival.

What Volkswagen employees received on the intranet this week was in many respects a declaration of bankruptcy. With rare openness, VW brand boss Thomas Schäfer announced an unpleasant message to the workforce: the Volkswagen brand is no longer competitive with its current structures, processes and high costs, he said. At the same time, he announced noticeable cuts: "We have to tackle the critical issues, including personnel."

Even if it is not yet clear exactly how many jobs will be cut and whether partial retirement will play a role, and even if the management's rhetoric of doom is of course also a negotiating tactic in the power game with the trade unions, Schäfer and his fellow board member Gunnar Kilan are breaking a taboo. VW boss Oliver Blume, who is also head of Porsche, is threatening to take the axe to the core workforce in Germany. For the first time, jobs are to be cut permanently at Germany's most important industrial group.

It is the biggest cost-cutting program in Volkswagen's history. The Group wants to save ten billion euros and cut costs by 20 percent. The car giant is aiming for radical restructuring because there is no other way forward. VW must reinvent itself or go under. A few days ago, Schäfer himself told HR Director Gunnar Kilan in an internal podcast, according to Handelsblatt: "We are too slow, too sluggish, too complicated - we are not viable." The fact that it has come to this has a lot to do with the fact that management and staff have turned a blind eye to uncomfortable truths for too long.

Secure jobs in uncertain times

The most important of these is that the Group is too expensive and has overslept the transition to electromobility for too long. While there was bickering in Wolfsburg about Christmas bonuses and plant capacity utilization, new competitors emerged in the USA with Tesla and, above all, in China, who have long been able to hold a candle to the car giant when it comes to electric vehicles. Despite the upheaval, the car manufacturer continued to offer its workforce benefits that date back to the 1950s: a generous company wage agreement, the clauses of which the trade unions defended tooth and nail. Secured by the minister presidents of Lower Saxony, who co-governed from the sidelines thanks to the VW law.

Employee co-determination, which in many places at VW had almost become a borderline cooperation between management and works councils due to decades of practice (keyword: visits to brothels), was also a guarantee of stability for a long time due to the compulsion to compromise. But now the system is reaching its limits.

IG Metall and VW works council chairwoman Daniela Cavallo are adamantly insisting on the employment guarantee they wrested from management years ago: no compulsory redundancies until 2029. It's as if the car world were still only revolving around the wish lists of German union officials - and weren't already light years ahead. VW may now be facing exactly what the Wolfsburg system has always tried to avoid: an open conflict between the Board of Management and the Works Council.

Slogans from the boardroom

But the VW bosses themselves have also played a major role in maneuvering Volkswagen into a dead end. After all, it has been clear for years that VW has a problem with the profitability of its core brand. Even under Blume's predecessor Herbert Diess, there was an efficiency program to reduce costs. Nevertheless, the margin continues to bob along at a measly three percent.

For years, the management's motto was to close its eyes and move on. For far too long, the Group continued to focus on expensive premium models instead of affordable entry-level e-cars. And in doing so, it only focused on the China card - without developing a plan B for the time when the car manufacturers from the People's Republic have caught up technologically - and make VW superfluous there. This turning point has now arrived. But apart from "Onwards to victory", not much is coming from the boardroom.

"There is no argument for us as to why we cannot develop and manufacture vehicles in China on the same cost basis as our Chinese competitors," Blume insists in the "FAZ" on the China strategy. The competition from the USA, Japan and France sees things differently. They have long since turned their backs on the People's Republic.

VW, on the other hand, is going one better. And is expanding its now fateful dependence on China: Blume is shifting the development of new electric cars away from Wolfsburg to the People's Republic. A separate development center there is to make decisions for the Chinese market independently of the headquarters in the future.

In fact, Volkswagen already capitulated to a certain extent in the summer with its investment in the Chinese manufacturer Xpeng. Europe's largest car manufacturer bought into a start-up in order to get a slice of the pie in the Far East. Because its cars, built with a lot of German engineering skill but with too little digital connectivity, are expensive slow sellers in China. This is all the more dramatic because Oliver Blume only became VW CEO in the first place because things were not going well in China - and he set out to change that last fall. Less than a year later, VW is just as weak in the Middle Kingdom. And all Blume can think of so far is to cut back at home in Wolfsburg. Whether the Group will break under the challenges of the times depends on whether Blume and his rival Cavallo succeed in getting rid of old habits in which those responsible at Volkswagen have made themselves comfortable for too long.