Volkswagen sells fewer cars and has to save, and workers want more money and security. Salary expenses in that company are already the highest in auto industry. Will Volkswagen manage to drive into the future?
German car manufacturers lack customers. In the first half of the year, sales fell by 4,7 percent - and just a year ago, record sales were recorded. Since the beginning of the year, fewer electric cars have been bought. Meanwhile, Volkswagen, its sports car subsidiary Porsche, as well as BMW, Mercedes and Stellantis (Opel's parent company) had to lower their expectations for the financial year. Deutsche says.
What causes the biggest uproar is the situation with Volkswagen, because that group has a special position: because of its size - Volkswagen is the second largest car manufacturer in the world - but also because politics is involved in everything. Although the company is listed on the stock exchange, the state of Lower Saxony holds 20 percent of the shares.
Special collective agreement
Until now, Volkswagen has handled its relationship with employees in a special way. After privatization in 1960 and a partial listing on the stock market, the company did not enter into any collective agreement, but concluded its own collective agreement with the IG Metal union, which only applies to Volkswagen employees. The agreed wages have always been well above the level stipulated by the collective agreement in the metal industry. It was also special that the people at Volkswagen had a guaranteed job for thirty years, which was supposed to last until 2029. That's over now.
The Volkswagen brand, which employs 120.000 people in Germany, has terminated a number of collective agreements under the company's collective agreement, including the part related to job security. Some of the ten factories in Germany could be closed.
Volkswagen in crisis
The largest German car manufacturer achieved a profit of over 2023 billion euros in 18 and paid out four and a half billion euros in dividends.
However, last year the so-called "efficiency program" with the aim of saving ten billion euros by 2026, in order to strengthen competitiveness. The group now wants to save even more. This year's sales will probably be around 320 billion euros, it was announced at the end of September. That would be about two billion less than last year.
Production significantly below capacity
Car sales in Europe have fallen significantly - two million cars less than before the corona, says CFO Arno Antlitz. For Volkswagen, this means that it will sell half a million fewer cars, which is the annual production of two plants.
It's a problem that isn't unique to Volkswagen. The factories of German car manufacturers are on average engaged with about two-thirds of their capacity, Stefan Brazel, founder and director of the research network Center for Management of the Automotive Industry (CAM) from Bergisch Gladbach, told DW. The profitability of a factory depends, among other things, on the model that is made there, "but basically you can say that the utilization must be over 80 percent", says the car expert.
The situation is particularly bad in Western Europe, in Germany, France, Italy and Great Britain, according to the business magazine "Wirtschaftsvohe". In contrast, countries such as Spain, Turkey, Slovakia and the Czech Republic still achieve a plant utilization rate of 79 percent. At the same time, wages in those countries are lower than in Germany.
High labor costs in Germany
In German factories, however, labor costs are higher than in any other country. In 2023, they were over 62 euros per hour, according to data from the industrial association VDA. For comparison, they are 29 euros in Spain, 21 in the Czech Republic, and only 12 euros in Romania.
Despite high wages, nowhere else in Europe in 2023 produced more cars in absolute terms than in Germany. However, the trend is downward. Production is now about 25 percent lower than in 2018, says Thomas Puls of the German Economic Institute (IW). Of the more than four million cars produced, almost a quarter were exclusively electric.
Premium models enabled the "Made in Germany" model
Expensive production in Germany was previously possible because manufacturers relied on expensive premium models. About three quarters of the cars were exported. This meant that expensive vehicles could be produced in Germany, despite the high costs. On average, one in five exported cars would go to China.
According to the IW study, production in Germany would not be possible with low-cost models, those that are sold in large quantities but for which the margin is lower. That is why French and Italian manufacturers, for example, moved their production to cheaper locations a long time ago.
Car expert Bracel agrees with the results of the IW study: "It is extremely difficult to produce cheap vehicles in Germany, including cheap electric vehicles." Recently, the company e.Go from Aachen tried it and - went bankrupt.
China is pushing other manufacturers out of the market
The situation is becoming more and more difficult for German car manufacturers, as new competition has appeared in China in recent years - in the electric car sector, and also in the premium segment. "Nearly a third of motor vehicles produced worldwide now come from Chinese factories." They produce far cheaper than it would be possible here," says Thomas Puls.
Unlike the German automakers who were able to sustain themselves for longer, other Western European automakers have been painfully aware since the turn of the millennium that more and more vehicles are being produced and sold in Asia – and especially in China. If we look at the data for Western Europe without Germany, we see that during that period car production fell by almost 40 percent. Half as many cars rolled off the assembly lines in France and Italy as in 2000.
In addition, with the transition to electro-mobility, German manufacturers have lost the place of technological leadership they had in the field of internal combustion engines. "Technological change opens the door for new competitors to enter the market, those whose core competencies are in batteries and electrical engineering," the IW study said.
In addition, manufacturers first had to gain experience in the field of electromobility, Bracel explains. In the beginning, the costs are higher and "that's why the situation in China is much better, because they have already gained a lot more experience, and they have also implemented efficiency improvements," Bracel explains.
EU CO2 limits are getting tighter
As if all that weren't enough, the Volkswagen Group, which primarily sells petrol cars in China, is now at risk of not being able to comply with the European Union's stricter carbon dioxide restrictions. That could result in billions of dollars in fines. Instead of waiting for those fines, Brazel points out, Volkswagen could use the money to significantly reduce the prices of its electric vehicles, in order to increase the share of sales of that type of vehicle and thus comply with the restrictions to a greater extent. Both options are expensive.
With all these problems in mind, the Volkswagen Group now wants to save money on its workers. The IG Metal union, on the other hand, is demanding higher wages: seven percent more for employees, without redundancies and without closing factories.
At the first round of negotiations, the management presented graphs that aim to show the situation Volkswagen is in in Germany, union representatives reported. But, as they emphasize, high costs for workers are not the only problem. According to IG Metal, those charts do not indicate management errors, serious miscalculations in the past, nor additional burdens, e.g. the famous diesel scandal. And the workers are not responsible for all that.
