Volkswagen sees ‘painful’ cost cuts ahead as profit plunges

The German group — whose 10 brands range from its core VW models to Seat, Skoda and Porsche — has been plunged into crisis by high manufacturing costs, a stuttering switch to electric vehicles and increased competition in key market China.

“We must intensify our efforts to remain competitive. And we have to act now. Any delay would be irresponsible,” Volkswagen finance chief Arno Antlitz said in a call with reporters.

The company is eyeing an unprecedented cost-savings push to turn the tide and dropped a bombshell in September when it said it was considering closing factories in Germany for the first time.

Worker representatives this week said at least three German VW plants were at risk and tens of thousands of jobs could go at the namesake brand, while remaining employees faced a 10-percent salary cut.

Volkswagen bosses have yet to comment on the details of the savings plan but have described the situation as “serious”.

“We are facing some difficult and painful decisions,” Antlitz said.

The savings proposals are focused on the core VW brand, which reported an operating profit margin of only two percent over the first nine months — far from the 6.5-percent targeted by 2026.

“This highlights the urgent need for significant cost reductions and efficiency gains,” Antlitz said, also citing a “challenging market environment”.

– Industry headwinds –

The group’s global vehicle deliveries fell by seven per cent in the third quarter, with an increase in sales in North America failing to offset a 15 per cent fall in China.

Deliveries of battery electric models were down 10 per cent.

The group said results were also impacted by “higher fixed costs” and restructuring expenses.

Other German carmakers are facing similar headwinds, and Volkswagen in September joined BMW and Mercedes-Benz in cutting its outlook for 2024.

The manufacturers are also nervously watching the European Union’s decision to slap hefty tariffs on Chinese-made electric cars, which they fear could trigger a bitter trade war.

Volkswagen began a second round of talks with the powerful IG Metall union Wednesday, expected to shed more light on the savings plan.

Labour leaders have vowed to fight back against any plant closures, and strike action is possible from December when a truce period ends.

The IG Metall union is also seeking a seven-percent pay rise for workers, which bosses have rejected.

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First Published Date: 30 Oct 2024, 21:15 PM IST