Volkswagen's Old-School Approach to New Era

Volkswagen, the world's leading vehicle manufacturer, is seeking a new era in Germany with an old-school approach. The company, which has been grappling with weak demand and cheap Chinese competition, has struck a cost-cutting deal with unions that relies heavily on cooperation between managers and workers. However, some investors and analysts are questioning whether this method will deliver the promised results, such as cutting 35,000 jobs and reducing production capacity.

Volkswagen's cooperative approach involves setting cost reduction targets for each factory and forming project teams of labor representatives and managers to figure out how to deliver them. The company hopes to achieve its job reduction target by not replacing retirees and offering early retirement schemes. However, some experts are skeptical that this approach will be effective in tackling the challenges the company faces.

One concern is that Volkswagen's approach may not be aggressive enough to address the issues at hand. For example, the company has agreed to end production at only two plants by 2027, while unions had initially feared the closure of three to four factories. Additionally, the company plans to cut two production lines at its Wolfsburg headquarters, but it is unclear how this will reduce fixed costs compared to closing plants altogether.

Another issue is that the company's job reduction target of 35,000 positions may not be achieved through voluntary measures alone. Volkswagen's previous attempt to cut 30,000 jobs in 2016 failed to reduce the overall workforce size due to hiring in other areas. The company's new deal with unions includes a clause that guarantees jobs until 2030, which may make it even more difficult to achieve its job cut goals.

Volkswagen's strategy aligns with the broader trends in the global automotive industry, particularly the shift towards electric vehicles and autonomous driving. The company's NEW AUTO strategy focuses on preparing for global changes in mobility and driving Volkswagen's transformation into a software-oriented company. This strategy includes the development of electric vehicles and autonomous driving capabilities through its CARIAD software company.

However, the company's cooperative approach to cost-cutting and job reduction may not be the most effective way to achieve its goals. More aggressive strategies, such as imposing changes from the top or closing plants outright, may have brought more certainty and faster results, but they could also have led to damaging strikes or higher costs. Volkswagen's cooperative approach may help to maintain social peace and avoid potential conflicts with unions and local politicians, who hold veto power on the company's supervisory board.

In conclusion, Volkswagen's old-school approach to a new era may not be the most effective way to tackle the challenges the company faces. While the cooperative approach may help to maintain social peace and avoid conflicts, there are concerns that it may not be aggressive enough to address the issues at hand. The effectiveness of this approach remains to be seen, and it will be important for Volkswagen to demonstrate progress in meeting its cost-cutting and job reduction targets in the coming years.