Volkswagen CEO admits ‘more than critical’ situation and prepares new cuts

Volkswagen is preparing for a new phase of restructuring, in the face of pressure from Chinese competition, falling profits in China and import tariffs in the United States. In an internal memo seen by Reuters, Volkswagen Group Chief Executive Officer Oliver Blume said “the situation is more than critical” and called for deep cost cuts to regain the company’s competitiveness.

SEE ALSO:

• In crisis, Volkswagen is considering selling part of Lamborghini and getting rid of Ducati
• In crisis, Volkswagen may sell stakes in Bayern Munich and other teams
• Volkswagen will kill half of the models; see which ones have already been discontinued

According to Blume, Volkswagen’s indirect costs remain more than 30% above those recorded by comparable companies. At the same time, the group’s operating margin is below 4%, a level considered solid under current conditions, but insufficient to sustainably finance new products, technologies and investments.

One of the most critical points is the possibility of new job cuts. About 50 thousand vacancies were calculated as a reference to measure the size of the necessary adjustment, but Blume stressed that it is not a fixed goal of layoffs. The estimate considers how many stations would be needed to eliminate the difference in costs in relation to competitors if there were no changes in other factors.

Volkswagen had already agreed to cut about 50,000 jobs in Germany by 2030, involving Volkswagen, Audi, Porsche and CARIAD. According to the group, more than 28 thousand exit agreements had already been signed by June.

The restructuring also involves simplifying the product line. The Volkswagen Group intends to reduce its model portfolio by up to 50% and the complexity of configuration options by up to 75%. The strategy seeks to concentrate investments and development on the products with the highest demand, in addition to reducing production and engineering costs.

German factories are also mentioned in the cut. Emden, Hannover, Zwickau and Neckarsulm are not expected to reach competitive levels of capacity utilization in the 2030s, according to Blume. Despite this, the executive said that there is currently no decision on the closure of any of these units.

The pressure comes at a time of transformation in the automotive industry, marked by the advance of Chinese manufacturers in the European market and the need for large investments in new technologies. For Blume, Volkswagen needs to reduce its structure and make its processes more efficient to remain competitive in the long term. The company’s supervisory board is expected to discuss the restructuring strategy again on Sept. 4.