The winter sun is already quitting for the day just after 2pm in Wolfsburg as early shift VW workers in grey dungarees emerge from Gate 17. To their left, towering above sleek business park blocks, is an industrial-era cathedral to car-making: the original Volkswagen factory with its trademark redbrick facade and four chimneys.
Three weeks to Christmas, the factory is casting a shadow over workers at the Tunnelschänke pub and adjacent kiosk. Between the tired glances and black jokes, the workers admit they don’t know what gifts they can afford for their families – or if they will still have a job in the new year.
In September, VW management announced the group faced an existential crisis unless workers accepted a 10 per cent cut in earnings. Redundancies and plant closures, they added, were now no longer taboo.
[ Volkswagen workers strike in latest unrest at carmaking giantOpens in new window ]
A decade after reframing its global diesel engine fraud as a “diesel difficulty”, VW’s PR gurus have yet to devise a euphemism for this disaster. What is the mood like inside the plant?
Despondent and insecure, says Nico, a 52-year-old mechatronics worker.
“With my qualifications, I could have gone anywhere but I came here 15 years ago because I thought this place was solid,” says the father of three. “Now we workers are told to make cutbacks and sacrifices from a €10 million-a-year chief executive, backed by a management clique who have no idea what Volkswagen should be doing.”
Spend time with workers outside the factory gate and they sketch a grim portrait of a company with its future blocked by its present.
Mathias, who works on the VW Golf – for decades the company’s bread-and-butter product – says the company’s crisis is complex yet simple: they are designing and building VW-branded cars people don’t want to buy, he says, “or at least not at the prices we can build them for”.
“The days are gone when Germany defined the market. We’re trying to do too much here at VW and nobody told the powers that be it wouldn’t work,” he said.
In August, this newspaper’s Neil Briscoe gave VW’s second go at an electric ID.3 – its Golf successor – a three-star review. “Better than it was,” he wrote, “but still not as good nor as affordable, as it ought to be.”
Mathias says the company is unable to turn out five-star cars because of a deep-seated corporate malaise that not even the “dieselgate” scandal managed to excise.
“We have a company culture that protects and rewards the ‘yes men’ rather than acknowledges can-do realism,” he says.
A third worker, Jens, agrees with that diagnosis, arguing that it has led to a further VW core problem of complacency.
“We needed an entirely new production and value chain to reflect the new EV [electric vehicle] reality,” said Jens, “but for too long we’ve had managers who thought they could just drop bought-in batteries into old cars, backed by politicians to shield them from harsh new realities.”
One illustration of VW’s struggle with reality is the vast expanse behind the Wolfsburg plant. What is now one of world’s largest collections of unsold cars – clearly visible on satellite images – was earmarked by former chief executive Herbert Diess as the site for VW’s dedicated “Trinity” EV factory to rival the new Tesla plant outside Berlin.
VW dumped Diess in 2022 and, a year ago, his original Trinity plan followed him out the door.
Instead his successor, Oliver Blume, said the new models – based on Volkswagen’s new scalable systems platform, will be delivered from an existing eastern German factory in Zwickau. In 2032.
For VW worker representatives, such management flip-flopping on key strategy is indicative of where the company’s problems lies.
Profitability
Before taking a closer look at VW’s problems, though, it’s worth pausing for a moment to consider what it’s problem isn’t. For one thing, VW isn’t drowning in red ink. It has a cash pile of €34.4 billion and net cash flow of €3.3 billion in the first nine months of 2024 alone.
“Contrary to the line that the company publicly asserts, and which journalists are only too happy to repeat, financial losses are by no means the issue,” argues Stephan Krull, a former VW employee, union official and analyst for the left-wing Rosa Luxemburg Foundation.
“For the owners and managers, a profit margin of 3.5 per cent for the Volkswagen brand is not sufficient; instead, they want 6.5 per cent for the brand and 10 per cent for the company – that is to say, a good €30 billion in profit, rather than the €22 billion in the previous year.”
Another bone of contention for VW’s unions and works council is the Porsche-Piëch family. The billionaire heirs to the VW founder own 53 per cent voting rights in the group and, in September, pocketed around half of the €4.5 billion paid out in dividends on profits of €18 billion.
Four months later workers learned €5 billion in savings were necessary to finance “heavy investment” in the company’s future.
VW workers’ representatives say that, without pain from the Porsche-Piëch family, they are not prepared to budge.
Similarly, VW brand chief executive Thomas Schäfer this week found himself in the crosshairs of VW works council chief, Daniela Cavallo.
During warning strikes on Monday at its Wolfsburg headquarters, the 49-year-old German-Italian manager told workers about Mr Schäfer’s Irish Times June 2023 interview. In it he discussed his weekly commute and “forever home” on a former stud farm in Ireland – far from what Cavallo called VW’s “beating heart” in Wolfsburg and Lower Saxony.
“Thomas Schäfer flies out on Friday evenings; he’s long had his base in Ireland,” she said, calling Schäfer a manager “with nothing to do with the VW homeland, a manager whose income of millions allows him belong to the elite, like the large shareholders ... and can settle with a first, second and third home.”
Cavallo’s background is very different: like thousands of others, her father left Calabria in southern Italy in the 1960s to seek a better life in Germany. Growing up, she recalled her father telling her: “If you get a training place with VW, you’ll have a secure future”.
Alongside Cavallo, her husband and two sisters are part of the 130,000 VW workers in Germany now facing cuts to their earnings – or even redundancy. Cavallo, one of 20 members of the VW supervisory board, has promised workers “not to give up without a fight”.
VW’s crisis in its homeland appears to be a collision between the company and its families like Cavallo’s – both as much as each other part of the then West Germany’s postwar economic revival, the Wirtschaftswunder.
When VW went public in 1960, West Germany’s federal government and the state of Lower Saxony each took a 20 per cent stake, which the latter still holds.
Unions, in exchange for not demanding compensation for property stolen and sold by the Nazis, settled for rules limiting private shareholder voting rights and ensuring no big decisions can be taken against the will of workers.
But have these rules, designed with an eye on stability and historic responsibility, helped bring the company to this cliff edge? In the third quarter, VW group profits fell 64 per cent while sales were down by 8.3 per cent.
Industry analyst Ferdinand Dudenhöffer says VW workers in Germany, and particularly in Lower Saxony, forget just how many privileges they don’t share with company workers elsewhere.
They enjoy special status, guaranteed by the combined voting power of unions and Lower Saxony representatives on the supervisory board. At board level, unions and political representatives pick managers and – by extension – share responsibility for company strategy, its successes and failures.
“The unions protect everything around their church tower in Wolfsburg, whatever it takes, to keep their local workers happy,” said Prof Dudenhöffer. “You don’t see these privileges – or problems – at VW’s Skoda subsidiary. The Czechs just get on with it and customers are buying a Skoda or Seat because they get the same vehicle for a lower price.”
With federal elections in 2025, and Lower Saxony state elections a year later, it is unlikely that state minister president Stephan Weil will do anything radical to rock the boat and upset state voters. But radical, Prof Dudenhöffer argues, is what VW needs.
“Volkswagen needs to be freed up. Lower Saxony should sell its stake and use the money to invest in start-ups and future-oriented projects in any closed plants,” said Prof Dudenhöffer of the CAR Centre Automotive Research. “As things are now, Volkswagen has a problem and that problem is Germany.”
With sales down 4.4 per cent for the year to date, car parks of unsold VW brand vehicles are no longer confined to Wolfsburg.
Sales of the group’s more expensive VW-branded products have declined 22 per cent in five years to 4.9 million cars.
Compounding difficulties, and concentrating minds in Wolfsburg, is a slip in its Chinese cash cow. A decade ago, Volkswagen pocketed €5.2 billion annually in China: last year, that was down to €2.6 billion. Another fall of 33 per cent this year is likely.
[ Foreign carmakers also have a China overcapacity problemOpens in new window ]
Last week, VW announced it would sell its operations in China’s northwest Xinjiang region, citing “economic reasons”. In China, analysts see a taste of things to come for VW in its home, European market.
As well as China, US earnings are a reported €1.3 billion short of expectations, VW has replaced its top management there due to poor sales and a series of product recalls – US authorities warned that ID.4 doors could open while driving.
On Wednesday, at a tense meeting with workers in Wolfsburg, group CEO Blume said his task was to fix “decades-long structural problems at VW”. Problems that previous generations of managers – and, he left unsaid, workers’ representatives – had chosen not to address.
“Our products are good but our costs have to sink,” he said. “Our labour costs here [in Germany], for example, are often more than twice as high as the average for our European locations.”
The management focus on costs, critics say, overlooks the corporate structures and mentalities that got VW to this point. While product and costs crises were overcome in the 1970s and 1990s, the company has yet to recover from the dieselgate scandal – manipulating diesel exhaust filters – that cost the business at least €31 billion.
Two generations of VW managers later, the race to catch up on the EV revolution has been complicated by in-house software disasters on the Golf 8 and ID.3.
[ VW and Volvo woes show challenges of change to EVsOpens in new window ]
Visiting VW headquarters on Wednesday was federal labour minister Hubertus Heil. He faces re-election next February in a constituency located beside Wolfsburg. Talking to workers, many of whom are also his voters, he called for an agreement that embraced change and social partnership equally. No boats were rocked.
“The employees at Volkswagen,” he said, “are people with rights and not just cost centres with ears.”
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