Volkswagen experiences big problems all around the company, especially with profitability and what to do next. To face these issues the board of directors planned to lay off some employees. This would be the first time in the history of the company that Volkswagen cannot guarantee to the employees that they will keep their job. The trade union IGMetall already announced that they will not let this happen. Now Volkswagen has to find another way to save money or earn more so they meet their goals for the future, ensuring Volkswagen profitability.
The Money-Problem at Volkswagen
The CEO of Volkswagen, Thomas Schäfer, invited the Managers at the end of last month to meet near Wolfsburg (head office of VW). They had to show up physically and not just per video call. This is unusual but mandatory if we look at the profitability issues at Volkswagen.
One topic was how Volkswagen has to be more profitable. 10 billion Euro the company has to achieve the goal of a 6.5% yield. To realize what that means we have to take a look at the first two quarters of 2024. There the company only achieved a yield of 2.3% which is way off the 6.5% goal. Reasons for that have to do with the changing market of electric vehicles and with that comes high interest rates and customers that want to save money. While Volkswagen just like about every other car company struggles with the second point, it affects the German brand more than others. This is because it is just so big and widespread in its products and companies. The other reason is that VW did not invest as much into electric vehicles. Other brands like Toyota did that though. In addition to that, the German government stopped the once so popular supports for buying an electric car.
What happens to the Volkswagen employees
Originally the company ruled that there will be a job guarantee for all employees until 2029. But with this crisis, the board of directors now plans to cancel that promise to maintain profitability. This is not yet negotiated with the employees but the chances that these cuts will happen are not very high right now.
Another plan is to close at least one plant in Germany. This would also be the first time to happen in Germany. Rising costs for employees with 49.8 billion Euro in 2023. On top of that there are more employees each year with a peak of 684,000 last year. This is driving costs very high. But the head of works council said that the job guarantee is kind of the “red line” that should not be crossed which is why the plan to lay off employees might not actually take place and instead focus on other measures to ensure the profitability of Volkswagen.
The CEO of IG Metall demands that Thomas Schäfer will not enforced his plans. Instead he brings up another idea that officials talked about 30 years when the job-guarantee became a reality, the 4-day-workweek. With that concept the employees form IG Metall that work at VW will only have to work 4 days a week for the same income as with the usual workweek.
Supports by the government to boost profitability of Volkswagen
The impact of the crisis is so immense that even the chancellor of Germany is now looking for solutions for the automobile company. He said that the government will watch the development of the crisis but won’t interfere. He is aware of the importance of the biggest company in the car industry. But to solve problems is in the hands of the company itself. The federal labor minister, Hubertus Heil (SPD), said that a solution has to be found. Moreover he mentioned that politics will support the company if necessary.
Increase in cost for cars with combustion engine
The company does not just want to cut costs to increase Volkswagen’s profitability, it also plans to increase earnings. For that the prices of cars with combustion engines will be increased. The company hopes for two major advantages with that move. First is that the sales of electric vehicles will increase and on the other hand the income in general will increase as well. The highest increase, with 2500€, will be for the new off-road vehicle, VW-Touareg. The VW Taigo and T-Cross will experience an increase in costs of 500€ and the bestselling cars, VW-Golf and -Tiguan will increase by 1100€.
With new prices and probably less expenses for human resources, the company might be able to achieve it’s goal and become more profitable. It will be interesting to see what the development of this is going to be in the future and if Volkswagen can keep it’s advantage in the market of being the number one biggest company in the car industry. Of course this is especially important for German economy but also for other countries where the car industry is an important sector.
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