Volkswagen must correct 'decades of structural problems' says CEO

Volkswagen is moving forward with an aggressive cost-cutting strategy to correct decades of mismanagement and structural issues according to CEO Oliver Blume.

Driving the news: The executive’s comments come just days after the brand released its Q3 earnings, unveiling a 42% year-over-year decline in operating profit. Company officials are pointing to a wide variety of challenges they say are contributing to the slide.

• “The weak market demand in Europe and significantly lower earnings from China reveal decades of structural problems at VW,” Blume remarked in an interview with German newspaper Bild am Sonntag.

• One of these problems is the higher costs Volkswagen faces in its home country, which the CEO said “must be massively reduced” to ensure the company’s survival. The automaker is currently calling for a 10% wage cut in Germany, where its manufacturing employees earn an average of $80,000.

• In its Q3 earnings, the brand went on to blame its poor financial performance on restructuring measures, which it expects to cost another 900 million euros.

Zooming out: Volkswagen’s troubles are hardly unique, as most European automakers, from Stellantis to BMW, have faced declining profits.

• Heavy spending on electrification has exacerbated the costs of competition with Chinese automakers, who continue to consume a larger portion of market share both domestically and globally.

• The effects of restructuring are likely to be felt across the E.U. Roughy 186,000 jobs are at risk in Germany alone, according to a study by the VDA auto industry association.

Looking ahead: Volkswagen’s cost-cutting plan is likely to face stiff pushback from its workers.

• Last week, the company’s work council revealed the brand was planning to shut down at least three factories in its home country. While the location of these facilities has yet to be announced, they would mark the first Volkswagen closures in Germany since the brand’s founding in 1937.

• The revelation prompted a mass protest involving thousands of workers at the company’s Zwickau electric vehicle plant, one of several likely downsizing targets.

• Union officials have promised a “hot winter” for Volkswagen, threatening strikes if the brand follows through on its plan to lay off workers.

Bottom line: Whatever happens, non-European consumers likely won’t see much difference in terms of product availability, at least not immediately. Only 5% of Volkswagen vehicles sold in the U.S. this year were shipped from Germany, the rest being manufactured in America or Mexico. However, with competition in China becoming more severe, change may soon be unavoidable.

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