- IG Metal unanimously votes for limited strikes from early December.
- Limited strikes will last for a few hours but the union could then vote to escalate the strikes for 24-hours or longer.
I=5, VW brand
Thomas Schäfer sees closure of German plants as unavoidable, says restructuring could take three to four years
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Thomas Schäfer, head of Volkswagen brand told WELT AM SONNTAG that the closure of plants in Germany is unavoidable.
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He said the restructuring of the brand could take three to four years.
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He agreed with IG Metall’s demand that salary cuts should also affect the management.
“If there is an agreement in the collective bargaining, then I believe that the board and management must make a contribution,” he said.
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I=6
Volkswagen has brushed off IG Metall’s proposal for a $1.5 billion cost-cut, including foregoing bonuses for 2025 and 2026.
“Sustainable savings of 1.5 billion euros cannot be ascertained even after intensive analysis”, Volkswagen said.
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I=6, VW brand
Volkswagen workers in nine plants begin strikes
- Workers at nine Volkswagen car and component plants will strike for many hours starting from today, IG Metall union said.
- The strike will last for around two hours and then repeated on each shift.
- If the deal is not struck in the next round of negotiations scheduled for December 9, the strikes could escalate into 24-hour or unlimited strikes.
- My estimate is an headwind of 3,000 units per day if employees in plants affected by the collective wage agreements only go on strikes.
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Around 66,000 Volkswagen brand workers in Germany participated in today’s warning strike.
I=5, VW brand
CEO Oliver Blume reiterated that urgent measures are needed to secure the company’s future, adding that pricing pressure is immense while demand is falling
- In a meeting with employees today, CEO Oliver Blume insisted that the situation at the company is serious and urgent measures are needed.
- He pointed out that the price pressure is immense and demand is falling.
- Blume flagged new competitors that are entering the market “with unprecedented force” and usually with higher margins, adding that the market in Europe is shrinking.
- Blume reiterated that the proposal from the works council is still far from sufficient to defend the company’s future.
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@moritz @Aron how sure are you VW issues are only temporary, and their measures (costs and investments) will eventually work to recover the companies numbers, and make it more efficient and competitive?
Researching the industry I came across a lot of articles/videos highlighting that the challenges facing Germany’s automotive sector, and Volkswagen, go far beyond the broader industry issues of slow market growth, or high and declining prices. Instead, these problems are largely attributed to a significant lack of innovation and insufficient investment until now, huge regulations, fixed costs, which was put them in a very difficult spot to compete from now on
While this sound very bearish for this company, I really don’t understand it enough to know if these are just exaggerate arguments
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You are right on those issues. I think when it comes to Volkswagen Group, the main problems relate to inefficiencies at the Volkswagen brand, growing competition in Europe and China, lacking behind in software technology, and the 2025 CO2 regulation which will be a drag on margins. Here is my understanding of each issue:
- Competitiveness of Volkswagen’s products: I am in the process of comparing Volkswagen’s products with those of Mercedes, BMW and even Volvo, and so far they appear competitive. The only major issues with these products is that they are somehow dated and are prone to software issues compared to that of rivals. However, the partnership with Xpeng and Rivian, two of the world’s industry leaders on tech should help the company fix the software issue in its 2026+ models. Similarly, Volkswagen is currently undergoing its largest product offensive in history which should make its products newer. I will give a full assessment on the competitiveness of its new products later on. While Chinese EVs are very competitive, due to reasons mentioned here, I don’t expect them to steal significant market share in Europe over the short-term to medium term. That should give the likes of Volkswagen time to develop cheaper and attractive models to ward them off.
Volkswagen already said that its ID.2 model priced at less than 25,000 euros is on track for a 2026 launch. In my opinion, such cheap EVs will be a gamechanger for European automakers given that consumers are yearning for them. Volkswagen also has a partnership with Xpeng and SAIC to develop cars for the Chinese markets. These models will come with advanced tech which should appeal the young Chinese buyers and help the company to maintain if not recoup its market share starting in 2026. - Cost-cuts and other efficiency measures: If Volkswagen brand is successful in the efficiency measures, its operating return on sales is expected to improve from 3.2% in Q3 2024 to 6.5% by 2026-cost-savings of more than 10 billion euros. Judging from the wage negotiation talks, it appears that Volkswagen is serious about the measures.
- 2025 CO2 regulation: While Volkswagen could avoid much of the penalty through pooling, the regulation will be a drag on margins and sales volume. Germany is currently lobbying for the regulation to be postponed. If they are not successful, I think they could reintroduce the EVs subsidies which is currently under discussions. This should reduce the headwinds on margins and sales volume.
Overall, I think Volkswagen’s success in beating this problems comes down to the execution of its management. So far, other than the arrival of models that had been delayed by software problems such as the EV Macan, Audi Q6 e-tron and Audi A6 e-tron, I currently don’t see much that proves management’s execution strategy is working.
I=3, Vw brand
- IG Metall negotiator Thorsten Gröger said there will be a second warning strike on Monday, parallel to the next round of negotiations.
- He said the second warning strike will last four hours compared to the first which lasted only two hours.
- Works council boss Daniela Cavallo said a decision has to be made in the next round of negotiations or there will be an escalation.
Do you think VW really has a chance to maintain or even recoup the market share loss in China? China’s market share of EVs is expected to continue to increase significantly, and Chinese EVs are already at parity with ICEs, with much better tech.
How much profit is coming from China, by the way?
I ultimately agree with you. It seems they have the plans or strategies to fix the current issues, but everything is dependent on their ability to execute well on those. I don’t think VW has much more room for failure?
BYD and Li Auto are the only profitable EV players in China. As pricing pressure continues, I expect that most of them will not survive. Volkswagen Group, on the other hand, is profitable with an expected 2024 net liquidity in the automotive division of more than 36 billion euros. So yeah, I think Volkswagen has a chance to recoup or maintain its current market share. It only needs to bring attractive models to the market. They say the Xpeng JV will bring new models to the market at a reduced time (30% less than before). The concept vehicles being developed with SAIC look great technology-wise. I still have to examine Xpeng’s and SAIC models in detail to be able to tell how the models they will develop with Volkswagen will look like.
In 2023, the proportionate operating result from China joint ventures was €2.6 billion euros, around 11.6% of the Group’s total (page 37). However, Porsche doesn’t sell through the joint ventures. In 2023, 25% of Porsche’s deliveries went to China (page 24). Based on this and operating profit of €6.3 billion, China contributed around €1.6 billion in 2023 to Porsche. That brings the total operating profit from China to around €4.2 billion, or 18.7% of the total.
I also don’t think Volkswagen has any room for failure, especially with regards to the upcoming models and the cost-cut measures.
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I=5, VW brand
No agreement was made in yesterday’s negotiation, another round of negotiation has been set for next week
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Yesterday’s negotiation with the works council ended without an agreement but Volkswagen AG’s lead negotiator, Arne Meiswinkel, said progress was made though they remain significantly apart on a solution.
“Today’s discussions were constructive, but we remain significantly apart on a solution. We now need cost reductions that can be implemented in the short term and have a lasting effect. This is how we secure our future,” he said.
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The next round of negotiation has been set for December 16, 2024.
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IG Metall negotiator Thorsten Groeger said as well that despite a much more “constructive discussion climate,” the parties remain far apart.
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I=6, VW brand
Volkswagen board is leaning against closing large plants in Germany, Manager Magazin reported
- Volkswagen board is leaning against closing large plants in Germany, Manager Magazin reported citing meeting participants.
- According to the sources, the board discussed stopping production at the 300-person Dresden plant and selling Osnabrueck which employs around 2,300 people.
- The sources pointed out that a final agreement has not been reached, with the Piech and Porsche families taking a harder line on cuts.
- The sources added that the board wants to reach an agreement before Christmas.
Volkswagen’s board leaning away from closing big plants in Germany, media report says
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I-7, VW brand
Volkswagen and works council reach a preliminary agreement, Handelsblatt reported
- Handelsblatt has reported that Volkswagen brand and IG Metall have reached a deal that will lead to cost-savings of 4 billion euros, in line with management’s plan.
- However, sources familiar with the matter said the deal is not final as representatives still have to work on some details.
- The sources said in the preliminary deal, a buyer would be sought for the Osnabrueck plant and the Dresden plant would be repurposed or closed while closure of Zwickau or Emden would be off the table.
- A Volkswagen spokesperson said no final or preliminary agreement has been reached.
I=9
Volkswagen and IG Metall have reached a deal that will cut technical capacity by 750,000 units, among other things
- IG Metall said it has reached a deal with Volkswagen management to avoid plant closures and guarantee workers’ jobs until 2030.
- In return, the union will withdraw its demand for wage increase until 2031, forego some bonuses, reduce the number of apprentices who get permanent jobs, and significantly cut capacity at five sites.
- CFO Arno Antlitz confirmed that the agreement reached will cut technical capacity by 750,000 units.
- Volkswagen shares are up 2.7%.
Assessment
Details on the deal are still scanty. However, cutting capacity by 750,000 units will definitely solve its overcapacity problem and the cost savings will likely be as high as the 4 billion euros that the management was aiming at. CFO Antlitz had said that Volkswagen brand’s plants have excess capacity of around 500,000 units. Therefore, before getting more insights, I think the deal is very positive.
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The deal with labor unions will lead to cost savings of 15 billion euros annually in the medium term
According to Reuters, Volkswagen said the deal will lead to cost-savings of 15 billion euros annually in the medium term, but will not have any significant impact on the 2024 guidance.
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Summary of the official labor negotiation deal
- Labor costs will be reduced by 1.5 billion euros per year.
- Capacity across German plants will be reduced by 734,000 units.
- The agreement provides for reduction of 35,000 jobs across German plants by 2030.
- These measures, among others, will lead to reduction in costs by more than 15 billion euros over the medium term. Of this, 4 billion euros will come from labor costs reduction, structural and production measures and plant utilization.
- As already indicated by Reuters, Volkswagen doesn’t expect these cost effects to have significant impact on the 2024 outlook.
- Volkswagen said it will make a full and final assessment on the impact of these cost effects on 2025 and subsequent year’s operating result in the coming weeks.
- As part of structural changes, production lines will be reduced to two from the current four and production of Golf will be completely moved to Mexico from 2027.
Assessment
Overall, the outcome of the negotiation was very positive, much better than I expected. However, implementing the structural changes could be a problem, leading to less cost benefits. I will consider the cost effects in my next valuation model update.
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Here are analysts’ opinions on the agreement with the labor unions:
- Neutral, €110: Analyst Jose Asumendi of JPMorgan said the agreement is a step in the right direction. He expects Volkswagen to cut production in Germany by a quarter in the medium term. He also expects drastic cuts at European locations outside Germany.
- Buy, €140: Analyst Philippe Houchois of Jefferies said the results felt short of mangement’s original targets and market expectations.
- Sell, €75: Analyst Patrick Hummel said the agreement is unlikely to impress the market. He pointed out that it’s unclear what the “medium term” means in concrete terms. Hummel is also not impressed with the reduction of the workforce by 35,000 jobs by 2030 on a “voluntary basis”. As such, he thinks that it is now less likely that the brand will achieve its margin target of 6.5% by 2026.
- “There is a risk that the gains will come too late and will not be sufficient,” ODDO BHF analysts wrote.
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I=3
Sector Perform, €100: Analyst Tom Narayan of RBC is disappointed that only two smaller plants, Osnabrück and Dresden, are threatened with closure over time.
I=3
Volkswagen management will take pay cuts amounting to over 300 million euros, VW Human Resources director Gunnar Kilian, told Braunschweiger Zeitung.