VW calls situation ‘serious’ and insists on tough cost-cutting

In the third quarter of 2024, Volkswagen Group saw its operating result shrink by 41.7% and its earnings after taxes by 63.7%. The core brand Volkswagen was barely profitable.

Against this backdrop, VW and IG Metall have started the next round of negotiations on the company’s collective labor agreement. VW CFO Arno Antlitz insists on billions in savings.

At VW, achieving higher margin targets or better market capitalization is no longer just a question of achieving them. The company has stated that the current situation is “serious” and a decisive phase in its history.

It’s now clear that the Group will close a plant in Europe for the first time. The lights will go out at the Audi plant in Brussels at the end of February. And while two German plants were counted at the beginning of September, there is now talk of’at least three plants’, so it is not just about smaller locations such as Dresden or Osnabrück but also larger plants.

Very poor Q3 results

Amid this dispute over the cost-cutting program, VW has not only presented its business figures for the third quarter but has also begun a new round of wage negotiations with the trade union IG Metall. The figures are extremely poor: profit after tax fell by almost 64% to €1.58 billion, while turnover remained nearly constant with a drop of 0.5% (€78.5 billion).

In the current year, turnover has still risen slightly to €237.3 billion, while the operating result has fallen by 21% to €12.9 billion. Profitability is therefore falling seriously, with the operating margin for the core brand, VW Passenger Cars, at just 2% in Q3. The target is 6.5% in… 2026.

Restructuring expenses

VW justifies the quarter’s profit drop with ‘considerable restructuring expenses’ totaling 2.2 billion euros. These are mainly severance payments. VW wants to reduce its workforce, and such payments are also pending at Audi. Expenses totaling €1.2 billion were recorded at Audi alone in connection with the impending plant closure in Brussels.

The ‘perfect storm’ is now becoming visible on the balance sheet. In the important Chinese market, German manufacturers’ market shares are falling, and former market leader VW has been hit particularly hard.

At the same time, the European market has not reached pre-coronavirus levels and, according to VW CFO Arno Antlitz, will not do so again: he does not expect to see more than 14 million vehicle sales on the continent in the long term, i.e., two million units fewer than before the pandemic. In other words, the pie is getting smaller, and new competitors are entering the market from China.

Reducing fixed costs

The VW core brand recorded a negative cash inflow of €1 billion in Q3. Neither in China nor in Europe can VW afford to raise prices in a competitive environment to generate further income.

Therefore, the only option is to reduce the already high fixed costs. Antlitz referred to the Group brand Skoda, which ‘in the same environment’ generated an 8% return in the first three quarters. Skoda operates with a competitive cost base.

Antlitz also stated that the original savings target of €10 billion had to be revised upwards, but he didn’t give an exact figure. Given the political discussion about the threat of plant closures and job losses and the coming collective negotiations, the group probably does not want to name any new savings targets.

“I am aware that the cuts being discussed at Volkswagen AG are tough,” says Antlitz. “But it is our joint responsibility to lead Volkswagen into a good and secure future. We must position the brand competitively for the future and future generations.”

No plant closures

‘Savings OK, but no plant closures’. This is how IG Metall’s position in the second round of collective bargaining can be summarised. Negotiating a “viable future concept for all sites” is the ‘ticket’ for further negotiations, said Thorsten Gröger, IG Metall’s chief negotiator.

Otherwise, the union would have to ‘plan for further escalation’. In other words, if VW insists on plant closures and massive job cuts. However, given Antlitz’s statements, this is hardly likely. Instead, strikes are possible in December, when the so-called peace obligation ends in the current round of negotiations.

Sparkle of hope

At least Antlitz can give the all-clear in one area, and ironically, it’s the electric car sector. As orders for e-cars have almost doubled (to 170,000 vehicles) and demand for plug-in hybrids (such as the Passat and Tiguan) is also rising, Antlitz expressed confidence that Volkswagen will be able to meet the CO2 targets for 2025 and thus avoid the costs of EU fines or being obliged to a CO2 pool.