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 employees, in keeping with details disclosed by company sources.
That has left some investors and analysts questioning whether it will possibly deliver on guarantees to chop capability and 35,000 jobs – changes that managers say are vital to the business’s survival amid weak demand and low-cost Chinese competition.
The deal was struck days before Christmas, and since employees returned from the vacations unions have been holding meetings across German factories – some with board members in attendance – to elucidate it, in keeping with two labour sources.
The agreement involves each factory being given its own cost reduction goal, with project teams of labour representatives and managers chargeable for determining the right way to deliver it and boost productivity, measured by the variety of cars produced per employee, in keeping with two sources near management.
Senior figures from each side will give progress reports at a quarterly meeting, the management sources added, emphasising that if interim cost reduction targets aren’t met, negotiations might have to start again.
It is a model that bears all of the hallmarks of Volkswagen’s tradition of cooperation and compromise, slightly than change imposed from the highest that might need brought more certainty, but in addition have run the chance of damaging strikes.
Many questions remain, from how the carmaker will lose so many employees without laying anyone off, to when the promised production capability cuts will occur, to what the long-term future holds for plants with empty halls.
That has left some investors underwhelmed, with Volkswagen shares trading below levels seen in October, before a plunge in quarterly profits.
“People don’t have the patience to take a position in an auto stock that trades predominantly on next yr’s earnings, with the hope that 3-5 years out, the corporate will restore its profitability,” said Patrick Hummel, auto analyst at UBS. “The market will expect them to speak concerning the constructing blocks – what’s the underside line impact in 2025?”
The stakes are high. While the Volkswagen group spans brands from the upmarket Audi to the mass-market SEAT and Skoda, its core namesake brand – the majority of its German business – accounted for greater than half of its vehicle sales in 2023.
CUTTING CAPACITY
During protracted talks, unions said the corporate raised the prospect of closing three to 4 factories. Volkswagen declined to present a particular figure, but said repeatedly it couldn’t rule plant closures out.
In the ultimate deal, the 2 sides agreed to finish production in 2025 at a Dresden facility, which employs 300 people, and in 2027 at an Osnabrueck plant, employing around 2,300, but committed to finding alternative uses for the sites, which could include latest investors.
An all-electric factory in Zwickau will lose one production line but receive latest investment in the shape of a recycling facility for second-hand combustion and electric vehicles, attributable to go into production from 2027, in keeping with a labour spokesperson from the factory.
But latest investments are contingent on meeting cost-cutting targets, as finance chief Arno Antlitz made clear in recent comments to investors seen by Reuters.
Remaining capability reductions will come from cutting two production lines at the corporate’s Wolfsburg headquarters.
Investors and analysts are unclear how well this approach will reduce fixed costs compared with closing plants altogether. Volkswagen has said the deal will save 15 billion euros ($15.6 billion) within the “medium term”, without giving specifics. A spokesperson declined to comment on any interim targets.
“It’s hard to square the super-tough narrative of getting reached a tipping point and moving into all guns blazing, with the agreement that got here out,” said Stephen Reitman, analyst at Bernstein Research who has followed Volkswagen for many years.
‘VULNERABLE AND ACCOUNTABLE’
Uncertain too is how the corporate will shed 35,000 jobs from its workforce. Volkswagen promised in 2016 to chop 30,000 jobs, but did not shrink the overall size of the workforce – roughly 120,000, then and now – due to hiring in other areas.
It hopes to realize its goal by not replacing employees who retire, and offering early or partial retirement schemes, a labour spokesperson said, highlighting that a clause within the deal that guarantees jobs until 2030 – a win for unions after Volkswagen scrapped a previous job guarantee agreement in September – meant that any departures can be voluntary.
Moritz Kronenberger, portfolio manager at Volkswagen shareholder Union Investment, said that while the deal may look disappointing from the surface, it made deeper cuts than some had expected given unions and native politicians hold veto power on Volkswagen’s supervisory board.
“(CEO Oliver Blume) stuck his neck far out, made big guarantees, and stirred up a whirlwind, inside and out of doors the corporate,” said Kronenberger.
“Blume stays the suitable CEO and is taking the suitable measures. But the associated fee structure of the corporate must look very different in two years. Volkswagen has to indicate that it’s armed for the longer term and may make attractive products,” he said, adding: “Blume has made himself vulnerable and accountable.”
($1 = 0.9602 euros)
(Reporting by Victoria Waldersee, Christina Amann in Berlin; Editing by Mark Potter)