Volkswagen: Large Cost Savings Promised Without Factory Closures, We Remain Skeptical on Execution

Volkswagen AG, the world's largest automaker, has announced ambitious plans to cut costs and improve profitability without resorting to factory closures. The company aims to achieve significant savings through various measures, including reducing fixed costs, improving purchasing performance, and optimizing production times. However, we remain skeptical about the company's ability to execute these plans effectively and achieve the desired results.



Volkswagen's cost-cutting measures are part of a broader strategy to adapt to the changing automotive landscape, which is increasingly dominated by electric vehicles and stricter emissions regulations. The company has set a target of achieving an operating return on sales of 6% by 2023, up from the 3.4% reported in the first quarter of 2022. To achieve this goal, Volkswagen plans to reduce its fixed costs and overheads, with a focus on lowering factory costs, which are currently 25-50% above target.

One of the key challenges facing Volkswagen is the high cost of labor in Germany, where the average salary of a VW employee in Wolfsburg is the equivalent of $80,000, compared to $20,000 at the company's factory in Puebla, Mexico. To address this issue, Volkswagen has proposed a 10% pay cut for all workers, as well as the closure of at least three German factories, which would result in tens of thousands of job losses. However, these plans have been met with strong resistance from labor unions, who have threatened potential strikes in the coming weeks.



While Volkswagen has acknowledged the concerns of labor unions regarding job security and wage cuts, it has not yet provided any concrete proposals for addressing these concerns. The company has emphasized the need for comprehensive measures to regain competitiveness and make essential future investments, but it remains to be seen whether these measures will be sufficient to satisfy the demands of labor unions.

One of the main concerns surrounding Volkswagen's cost-cutting plans is the potential impact on the company's ability to innovate and compete in the rapidly evolving automotive market. The company's works council has warned that the planned cuts are "of historic dimensions" and that all German VW plants are affected by the plans. The head of the works council has also noted that the company is planning to move some production abroad or outsource it to other companies, which could further threaten job security.



In conclusion, while Volkswagen's cost-cutting plans are ambitious and well-intentioned, we remain skeptical about the company's ability to execute these plans effectively and achieve the desired results. The company faces significant challenges in addressing the concerns of labor unions and maintaining its competitive edge in the rapidly evolving automotive market. Only time will tell whether Volkswagen's plans will be successful in improving the company's profitability and ensuring its long-term sustainability.