VW, Again, Said To Need Urgent Survival Reform; Don’t Hold Your Breath

VW ID.BUZZ (Photo by TOBIAS SCHWARZ/AFP via Getty Images)

AFP via Getty Images

“Kicking the can down the road” is a metaphor that might have been designed to describe Volkswagen‘s 89-year corporate history. VW is facing another crisis which demands it reform itself and behave like a normal shareholder-owned company. Despite the noise, don’t expect radical change.

Investors have been thwarted for decades by VW’s ownership structure, which makes it accountable to its employees, not its shareholders. Volkswagen does have shares quoted on the stock market but its complicated control structure includes Porsche and Piech family shareholdings, the independent emirate of Qatar, the German state of Lower Saxony, and last but not least, unions. The supervisory board has ultimate power with unions holding half of the 20 seats. That should give the chairman Hans Dieter Poetsch the decisive vote. But shareholder representative Susanne Wiegand recently resigned.

The board meets Thursday to decide VW’s reaction to its latest crisis.

VW CEO Oliver Blume has proposed the company double its planned layoffs to 100,000 and shut 4 German plants. Profits from China, which used to be a virtual license to print money for the Germans, are slumping. The European sedan and SUV market is still stagnating at sales nearly 4 million short of its pre-Covid high. President Trump’s increased U.S. tariffs have weakened another big earner. Chinese autos now account for almost 10% of the European market. Global consultancy AlixPartners expects this to rise to 16% by 2030.

Switch Chinese production back to Germany

Some shareholders want VW to switch the production of vehicles it makes in China, back to Germany. Other unconfirmed reports claim six out of nine board members say VW’s current problems threaten its existence.

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Chester Springs, Pennsylvania-based Auto Forecast Solutions analyst Sam Fiorani said VW wants to spin off its own name core brand and auto parts manufacturing into separate companies.

“An additional move planned by Blume would help circumvent the Supervisory Board. The CEO is looking to divide the company into two operations. One would keep the vehicle production side while the other would hold the parts manufacturing divisions. In concept, the new structure would remove the Supervisory Board from decision making at the vehicle manufacturing level and allow Blume to make the cuts he sees as necessary,” Fiorani said in AFS’s latest newsletter.

Frank Schwope, automotive consultant and lecturer at FHM Berlin, doesn’t see any signs of a point of no return for VW.

“We’re still a long way from reaching the end of the road. Volkswagen is still making a healthy profit, unlike in 1974 and 1993. What’s more, the group was still in a position to pay out around €28 billion ($32 billion) in dividends for the period 2021 to 2025,” Schwope said in an email exchange.

In 1974, Volkswagen was making huge losses because its technology had fallen behind, while the global oil crisis of 1973 hurt the global industry. VW switched from the rear-engine Beetle to a new generation of modern vehicles. Calls that VW move from being a company mainly existing to benefit employees not shareholders came to nothing. In 1993, a recession led to more huge losses. Instead of firing about 30,000 workers, VW introduced a 4-day work week and made sure more standard parts were used across its many brands. No concessions were made to structural reform.

There is no other option

Matt Schmidt, founder of Schmidt Automotive Research, reckons that this time, VW has no option but to take radical action.

“He (CEO Blume) has to get this done. With the market becoming hyper competitive there is no other option,“ Schmidt told Automotive News Europe, estimating that Blume’s chances of success were 50-50 with a potential compromise involving the closure of two of the proposed four plants.

The four plants up for closure were Hanover, Zwickau, Emden and Neckarsulm.

Other analysts said Blume should be thinking about cutting back on the number of VW brands – now comprising the own mass market VW, Skoda, SEAT/Cupra names, and Audi, Porsche, and Bentley, Lamborghini and Ducati motorcycles.

Consultant and lecturer Schwope expects much less drastic action, and any decisions will likely be put off until the 2030s.

“In my view, the plants in Hanover, Emden (and probably also in Zwickau) are not at risk of closure. Emden and Hanover are in Lower Saxony, and the Lower Saxony government is likely to intervene here in light of the VW Act,” Schwope said.

The Volkswagen Law protects the company from hostile takeovers and outside control. Single stockholder's voting rights are limited to 20% and give local government and workers veto power over major business decisions. The Law dates back to 1960. The European Union has tried and failed to ban this practice.

Compromises again

“There is also an employment guarantee in place until 2030. I assume that compromises will be reached once again and that an agreement will be made to cut a further tens of thousands of jobs in the 2030s. VW must both cut costs and develop new visions. It lacks innovation and the ability to successfully tap into new markets such as India and South-East Asia,” Schwope said.

After many years of writing about the imminent and desperate need to finally bring VW into the modern world of shareholder accountability, via Reuters, the Detroit News and Forbes, this reporter is betting on the can being kicked down the road. again, or maybe into the long grass.