VW CEO Blume: ‘Kitchen is shrinking with too many guests at the table’

Volkswagen faces unprecedented challenges as it struggles to navigate an increasingly harsh economic landscape. It is facing plant closures in its home country and has replaced the Financial Director, as slow EV sales and rising competition are slowly strangling Europe’s number one car brand. CEO Oliver Blume says the challenging situation is “one we’ve never seen before.”

Bild am Sonntag interviewed Blume, and he painted a worrying image for the car group he’s currently leading. He emphasized that the situation at Volkswagen is particularly severe, with rising costs and declining profitability prompting the need for drastic measures. This was his response to earlier warnings of closing plants in his home country, Germany, which would be a first in the brand’s history.

Market shrinks, competitors rise

A further illustration of the crisis is the leave of Volkswagen brand financial director Patrik Andreas Mayer, who’s trading places with his colleague at Seat, David Powels. Mayer wanted to use funds for innovation to support the cost-cutting scheme, but this move faced severe objections from trade unions as this budget served to secure future products.

Blume told Bild am Sonntag, “The kitchen is shrinking, and there are too many guests at the table.” In other words, the market dwindles as competitors rise. To counter these challenges, Volkswagen aims to cut costs by €5 billion across all its brands and subsidiaries.

While specific measures have not been disclosed, VW is clearly seeking to streamline operations amid declining vehicle sales in Europe and an increased presence from Asian manufacturers.

Strikes are in the air

Earlier this month, Blume indicated that the planned job cuts through early retirements and severance packages may no longer be sufficient to meet the company’s savings targets. This means compulsory layoffs are on the table.

The employment security agreement, which guarantees jobs, could also be at risk, which has sparked concern among the workforce. The union board representative, Daniela Cavallo, has already threatened with strikes, which aren’t as common in Germany as in other European countries.

But these are to be reckoned with by management. When speaking to the assembled workforce last week, Blume faced a booing crowd, preventing him from speaking as he faced a wall of whistling.

When protests subdued, Blume metaphorically compared the company to a family that can barely make ends meet at the end of the month, depending on a benign family member to pay for unexpected costs.

The latter is definitely China, but profits from the Asian giant market have halved as BYD took over the top spot from Volkswagen. The Chinese competition isn’t solely a threat on European soil.

20,000 people, too many?

The outlook for costs is dire. According to the car manufacturer, Wolfsburg is half a million sales short to justify its production footprint. If vehicle sales don’t grow, the company faces the redundancy of two plants. Some experts even state that there are 20,000 too many people at work.

Other costs that the brand is facing are lost profits from price wars, which grew much bigger than anticipated, while energy and material prices remain high. On average, Volkswagen pays 62 euros per hour for its workforce in Germany, almost four times higher than what BYD pays in its Hungarian factory.

A cold for Germany

While the import tariffs are put in place to dampen the surge of Chinese competition, the adverse effect will be that these companies will manufacture locally in Europe on a cost basis with which Volkswagen cannot compete. Currently, the car group is still profitable. With sales dropping by 2%, profit in the second quarter of 2024 reached 5.4 billion, or 2.4% less than the year before.

Meanwhile, Daniela Cavallo has stated that plant closures are off-topic. She pointed to bad management as the culprit for all problems and reached out to Chancellor Olaf Scholze. “If Volkswagen coughs, then Germany will grab a cold,” she warned.