Just a couple of 12 months in the past, VW Works Council Chairwoman Daniela Cavallo already warned that Europe’s largest carmaker is “heading straight into a perfect storm.” Apparently, this storm has now arrived after the VW administration just lately introduced that it is going to be pressured to shut one, if not two, automotive crops in Germany and lower 1000’s of jobs attributable to falling gross sales.
The announcement got here simply forward of contemporary collective bargaining talks in late September that many staff routinely anticipated would reap them increased wages, however as an alternative will now gasoline uncertainty throughout the 120,000 workforce employed on the VW model in Germany.
Meanwhile, the tense state of affairs at Europe’s largest carmaker can also be threatening to spill over into German politics as 20% of VW shares are held by the federal state of Lower Saxony wherein VW is situated and operates its principal manufacturing unit.
As instances are altering
Over many many years, and with the assistance of politicians, administration and labor unions have carved out a particular relationship. After the partial privatization and stock-market itemizing of the previously state-owned carmaker in 1960, staff represented by the highly effective metalworkers union IG Metall achieved an settlement that allowed them to choose out of the kind of industry-wide collective bargaining settlement widespread in German {industry}.
Since then, VW wages have been considerably increased than these at different producers, and within the Nineteen Nineties employee representatives secured a 35-year job assure that dominated out job cuts till 2029. This job assure has now been unilaterally scrapped by the VW administration citing “particularly significant challenges” equivalent to rising prices chopping into firm income.
“In the current situation, even plant closures at vehicle production and component sites can no longer be ruled out,” Volkswagen mentioned within the be aware despatched to staff early in September.
VW disaster unfolding amid European automotive droop
In 2023, the 10-brand automotive group nonetheless posted sound income totaling greater than €18 billion (19.7 billion), and paid out €4.5 billion in dividends to shareholders. Nevertheless, VW administration launched an effectivity program final 12 months geared toward saving €10 billion by 2026 to spice up competitiveness.
In August 2024, nevertheless, administration mentioned additional financial savings measures have been required after disappointing outcomes confirmed an anticipated dip in total gross sales to €320 billion — about 2 billion lower than the earlier 12 months.
The decline has come as automotive gross sales throughout Europe usually are down by 2 million automobiles, in contrast with ranges earlier than the COVID-19 pandemic. For VW, this implies promoting about half 1,000,000 fewer vehicles — roughly equal to the manufacturing capability of two crops, as VW finance chief Arno Antlitz mentioned in the course of the presentation of firm figures in September.
Stefan Bratzel, founder and director of the Center of Automotive Management (CAM) in Bergisch-Gladbach, Germany, says overcapacity is an issue for all German carmakers as a result of their factories are at present working at solely round two-thirds of their most output capability. For a plant to be worthwhile, he instructed DW, “production levels should ideally exceed 80%” relying on the mannequin.
Bratzel mentioned carmakers primarily based in France, Italy and the UK have been experiencing a equally dire state of affairs, whereas these in Spain, Turkey, Slovakia, and the Czech Republic are nonetheless working at round 79% capability due to decrease manufacturing prices.
And but, Germany nonetheless produced extra vehicles in 2023 than some other European nation, based on newest {industry} knowledge.
Thomas Puls, a transportation skilled on the German Economic Institute (IW), notes, nevertheless, that automotive manufacturing in Germany has steadily gone down lately, dropping by about 25% since 2018. Also, gross sales of electrical automobiles (EVs) made up solely 1 / 4 of the 4 million vehicles bought total in Germany final 12 months, he instructed DW.
Industry transformation positive aspects traction as China muscle mass in
According to a report by German auto {industry} affiliation, VDAGerman producers’ wage prices are the best on this planet, averaging over €62 per hour in 2023. By comparability, hourly labor prices are €29 in Spain, €21 within the Czech Republic, and simply €12 in Romania.
German carmakers’ manufacturing prices have been manageable due to their principally high-end premium fashions, of which roughly three-quarters have been exported abroad. In current years, no less than 20% of the vehicles produced right here went to China.
The IW suppose tank wrote it is not potential to provide cheaper fashions with decrease margins in Germany, which is why French and Italian carmakers had moved their manufacturing of mass-market vehicles to cheaper places way back.
Auto skilled Bratzel additionally thinks that it is “extremely difficult to produce affordable vehicles — especially affordable electric vehicles — in Germany,” including that the final German EV maker making an attempt to do that was named e.Go and went bankrupt solely just lately.
What’s much more worrisome for German carmakers than excessive manufacturing prices is the technological edge secured by their rivals from China, notably within the EV market. Thanks to lavish state subsidies and regulatory measures, they’ve made large technological strides in key EV elements equivalent to batteries which they’ll produce cheaper now.
“The technological transition has opened the door for new competitors whose strengths lie in battery and electrical engineering,” an IW report says, in order that “almost a third of all cars produced worldwide now come from Chinese factories, where production costs are significantly lower.”
Stefan Bratzel says Chinese producers are in a greater place concerning EVs as a result of ” they’ve gained a lot more experience and implemented efficiency improvements.”
The aggressive advances China has made are being mirrored in European automotive manufacturing figures that present an total decline of 40% because the 12 months 2000, with France and Italy even dropping by about 50%. Only German carmakers have been managing to carry their floor considerably, IW has discovered.
Emission targets: The remaining blow to Europe’s carmakers?
Some carmakers in Europe at the moment are additionally warning they might incur billions of euros in fines if they can not meet the EU’s bold local weather targets attributable to falling EV gross sales. The present fleet common goal of 115.1 grams of CO2 per kilometer traveled will lower by round 19% in 2025 to 93.6 g/km.
Renault Chief Executive Officer Luca de Meo instructed France Inter radio in September the European automotive {industry} may face penalties of “as much as €15 billion.” The European automotive {industry} physique, ACEA, is already calling for an “urgent review” of emissions guidelines to be utilized in 2025.
The ACEA board, which incorporates the chief executives of Renault, Nissan and Toyota, mentioned in a press launch that carmakers confronted the “daunting prospect of either multibillion-euro fines . . . or unnecessary production cuts, job losses, and a weakened European supply and value chain.”
Amid these challenges, VW administration is now trying to tighten the screws on its staff, who’re demanding a 7% wage improve, no layoffs, and no plant closures.
After the primary spherical of negotiations, union negotiators mentioned VW’s administration offered charts highlighting the “Germany penalty” related to excessive labor prices. But labor prices aren’t the one challenge on the carmaker, they added, as administration errors, misjudgments, and scandals just like the diesel emissions scandal weren’t the fault of the workers.
This article was initially printed in German.
https://www.dw.com/en/volkswagen-employees-add-to-german-carmaker-s-headaches/a-70425198?maca=en-rss-en-bus-2091-rdf