BERLIN (Reuters) – For all its talk of radical change, Volkswagen's cost-cutting deal in Germany rests heavily on the automaker's tradition of cooperation between management and workers, according to details disclosed by company sources.
That has left some investors and analysts questioning whether it can deliver on promises to cut capacity and 35,000 jobs – changes managers say are essential to the business's survival amid weak demand and cheap Chinese competition.
The deal was struck days before Christmas, and since workers returned from the holidays unions have been holding meetings across German factories – some with board members present – to explain it, according to two labor sources.
The agreement means that each factory gets its own cost reduction target, with project teams of labor representatives and management responsible for figuring out how to deliver it and boost productivity, measured by the number of cars produced. per employee, according to two sources close to management. .
Senior officials from both sides will give progress reports in a quarterly meeting, the management sources added, stressing that if interim cost reduction targets are not met, it may be necessary to start negotiations again.
It is a model that bears all the hallmarks of Volkswagen's tradition of cooperation and compromise, rather than change imposed from the top which could have brought more certainty, but which also ran the risk of damaging strikes.
Many questions remain, from how the automaker will lose so many workers without laying off anyone, to when the promised production capacity cuts will happen, to what the long-term future holds for plants with empty halls.
That has left some investors reeling, with Volkswagen shares trading below levels seen in October, before quarterly profits fell.
“People don't have the patience to invest in an auto stock that trades primarily on next year's earnings, with the hope that 3-5 years out the company will restore its profitability,” said auto analyst Patrick Hummel at UBS.” The market will expect them to talk about the building blocks – what is the fundamental impact in 2025?”
The stakes are high. While the Volkswagen group spans brands from the upmarket Audi to the mass-market SEAT and Skoda, its core namesake brand – the bulk of its German business – accounted for more than half of its vehicle sales in 2023.
BREAKING CAPACITY
During lengthy negotiations, unions said the company raised the possibility of closing three to four factories. Volkswagen declined to give a specific figure, but repeatedly said it could not rule out plant closures.
In the final deal, both sides agreed to end production in 2025 at a facility in Dresden, which employs 300 people, and in 2027 at a factory in Osnabrueck, which employs around 2,300, but committed to up to other uses for the sites, which could include a new use. investors.
An all-electric factory in Zwickau will lose one production line but receive new investment in the form of a recycling facility for used combustion and electric vehicles, which is due to start production from 2027, according to a labor spokesman from the factory.
But new investments depend on meeting cost-cutting targets, as finance chief Arno Antlitz made clear in recent comments to investors seen by Reuters.
The remaining capacity reductions come from cutting two production lines at the company's Wolfsburg headquarters.
Investors and analysts are not clear how well this approach will reduce fixed costs compared to closing plants altogether. Volkswagen has said the deal will save 15 billion euros ($15.6 billion) in the “medium term”, without giving specifics. A spokesman declined to comment on any interim targets.
“It's hard to square the really tough narrative of having reached a tipping point and going in all guns blazing, with the deal that came out,” said Stephen Reitman, an analyst at Bernstein Research who has followed Volkswagen for decades. .
'OPEN TO DAMAGE AND LIABLE'
Also uncertain is how the company will lose 35,000 jobs from its workforce. Volkswagen promised in 2016 to cut 30,000 jobs, but failed to reduce the total size of the workforce – about 120,000, then and now – due to hiring in other areas.
It hopes to reach its target by not replacing retiring workers, and offering early or partial retirement plans, said a labor spokesman, highlighting that there is a clause in the deal which guarantees jobs until 2030 – a victory for unions on after Volkswagen canceled a previous job warranty. agreement in September – meaning any departures would be voluntary.
Moritz Kronenberger, portfolio manager at Volkswagen Sharedholder Investment Union, said that while the deal might look disappointing from the outside, it made deeper cuts than some had expected given that unions and local politicians have on veto power on Volkswagen's supervisory board.
“(CEO Oliver Blume) stuck his neck out, made big promises, and stirred up a storm, both inside and outside the company,” Kronenberger said.
“Blume is still the right CEO and he is taking the right measures. But the company's cost structure needs to look very different in two years. Volkswagen has to show that it is equipped for the future and can make attractive products,” he said, adding: “Blueme has made itself vulnerable and liable.”
($1 = 0.9602 euro)
(Reporting by Victoria Waldersee, Christina Amann in Berlin; Editing by Mark Potter)
