Key Takeaways:
– Volkswagen’s Q3 2024 profits dramatically decreased by 63.7% with an 8.3% sales drop.
– There are plans to slash paychecks as a measure to avoid factory closures.
– CEO Oliver Blume blames longtime structural issues for the struggling performance, particularly in Europe and China.
Volkswagen’s Grim Situation
The challenging times that Volkswagen Group currently faces are far from an insignificant bump. Alarming numbers are emerging from their recent financial reports, showing a dramatic collapse in after-tax earnings by 63.7% in the third quarter of 2024, coinciding with an 8.3% decrease in sales. Looking at the fiscal year collectively, the first nine months have also been unfruitful, with profits falling by a significant 30.7% and sales declining by 4.4%.
Decades-Old Issues Haunting Volkswagen
Volkswagen CEO Oliver Blume is pointing towards deep-rooted issues that have been besieging the company for decades. In an interview, Blume highlighted that structural problems within the automaker have resulted in a lackluster performance in Europe and China. For Volkswagen to regain a healthy financial position, the CEO stresses the need for a sweeping cost-cutting strategy.
High Labour Costs and Competitive Disadvantages
One glaring issue Volkswagen faces in Germany is exorbitant labour costs. Blume revealed these costs are often more than double the European average, hindering their potential to compete effectively with their rivals. He further specified a pressing need for action in reducing development and sales costs along with other aspects contributing to an expensive operation.
Past Scandals Still Costly Today
There are several chapters from the recent past that have left their mark on Volkswagen. The company got caught in a sprawling scandal related to diesel emissions cheating – an event known as Dieselgate – which put a considerable strain on the automaker. The fiasco, dating back to 2020, resulted in costs around €31.3 billion or an approximate equivalent of $34 billion. Software issues with their Golf 8 and ID.3 models also dealt a blow to the group’s prominence.
Plan of Action: Pay Cuts and Cost Optimization
Gunnar Kilian, Volkswagen’s HR chief, voiced support for Blume’s cost-cutting plans by stating that employees must be ready for cuts. The need for quick restructuring is urgent, requiring the workforce to relinquish their 7% pay rise demand and be prepared for a 10% pay reduction. Collective bargaining to facilitate these changes is scheduled to commence in late November.
Indirect personnel costs are also having a spotlight shone on them. This includes the reduction of bonus payments during holidays, as well as on company cars. Other cost-saving measures include cutting down on the number of trainees, managing positions vacated by retired staff, and planning early retirement packages. A company representative added that material and product costs are set to be optimized with a further reduction of fixed and production costs.
Refreshing the Company War Chest
Close to one billion dollars (€900 million) has been earmarked for executing these cost reduction solutions. The funds are expected to overcome the financial downswing faced by Volkswagen. While it isn’t clear yet if factories will have to be shut down, it is undoubtedly an uphill battle amid the rising competition, particularly from Chinese auto manufacturers.
The road ahead appears bumpy as Volkswagen navigates through these current challenges. However, with drastic reforms underway, the automaker aims to recover lost ground and once again steer towards market leadership.