Volkswagen’s Choice: Fire Union Workers And Cut Costs, Or Go Bankrupt

Authored by Mike Shedlock via MishTalk.com,

The unions and government leaders are howling but what must be done will be done.

Big Outcry Over Closures

DW reports VW’s Warning on Plant Closures in Germany Causes Outcry.

Volkswagen’s announcement on Monday (September 2) that it is considering closing factories in Germany is unprecedented in the German automaker’s 87-year history. Such plant closures were considered off the table for the Wolfsburg-based company.

To make matters even worse for the 680,000 VW employees worldwide, the management also feels forced to end its job security program which has been in place since 1994 and prevents job cuts until 2029.

The regional state of Lower Saxony still holds one-fifth of the company’s shares and a permanent seat on the supervisory board, meaning securing jobs and factories has always been seen as matters of state interest.

Last year, Volkswagen launched a cost-cutting program aimed at saving €10 billion ($11.06 billion) by 2026. However, the mass-market carmaker would need to cut an additional €4 billion, according to a report by German business daily Handelsblatt.

In a letter to employees on Monday, VW brand chief Thomas Schäfer described the situation as “extremely tense” and beyond the scope of “simple cost-cutting measures.” VW Group CEO Oliver Blume added that the European automotive market is in a “highly challenging and serious situation,” and that Germany has fallen behind in terms of competitiveness.

As a result, the 10 car brands within the VW Group must be comprehensively restructured, and “plant closures are no longer excluded,” Blume said, adding that layoffs through early retirement and severance packages are also no longer sufficient. Therefore, VW feels “compelled to terminate the employment protection agreement that has been in place since 1994.”

The Emden mayor has the backing of labor union leaders like Thorsten Gröger, who described the VW plant closures “irresponsible plan.”

The VW works council, meanwhile, is particularly enraged by VW’s reluctance to clarify who might be affected and how. “This puts all German sites in the crosshairs — regardless of whether they are VW locations or subsidiaries, in western or eastern Germany,” said Daniela Cavallo, head of the general works council. She announced “fierce resistance.”

CAR founder and director Ferdinand Dudenhöffer sees an “age-old VW problem” because the carmaker is “more like a state enterprise than a market-driven company.” The problem will persist, he told DW, as long as VW’s company structure remains “flawed.” Along with its 20% stake and a seat on the VW board, the state of Lower Saxony was also granted a blocking minority on key decisions.

Lower Saxon State Premier Stephan Weil has already criticized VW’s management, saying “the question of plant closures will not arise due to the successful use of alternatives.”

Easy to Spot Problems

The state has no business owning shares. Letting government dictate business decisions is more than a bit problematic.

Unions are obviously a problem.

And for the situation to get this out of hand suggests VW management put off needed decisions too long.

No Realistic Choice

Saxony’s Prime Minister, Stephan Weil, says “the question of plant closures will not arise due to the successful use of alternatives.”

OK Mr. Weil, are you going to force VW to keep making cars nobody wants to buy?

There is no choice here. So look for a scapegoat: China.

Time to Blame Foreigners

The core problem of Germany and the EU is they are both stuck in the past. Eurointelliligence mentioned this yesterday.

It’s difficult to deny that the EU has a China problem. The union’s most important outside trading partner has turned into an existential problem for some of the key industries of the future, like cars or renewable energy infrastructure.

But it would be an equally serious mistake to see this as all about China, as opposed to economic and industrial policy decisions the EU has made too. We noted, for instance, a recent interview in Het Financieele Dagblad with Wopke Hoekstra, where the China issue was a major theme.

In the interview, Hoekstra acknowledged what he regarded as internal failings of the EU: labyrinthine bureaucracy, and the lack of a single, functional capital market. We would agree these are both problems. But if dealing with these internal problems is the expressed preference, the revealed preference is more to go after China. Progress on the capital markets union has been crawling along. Tariffs on Chinese electric cars have been swift by comparison.

The real core problem is that we have fallen behind, and done so because our economic and industrial system is stuck in the past. The Chinese electric car, battery, and solar companies that now dominate these markets are relatively new, and there are a lot of them. The US’s tech giants are more consolidated, but have also sprung up quite recently.

If you look at the largest European firms, in contrast, it really is the old continent. Most either date back more than 50 years themselves, or were derived from other firms that do. The trifecta of corporations, unions, and governments we have built does not easily allow for new entrants. This is not sustainable when you need them to gain a foothold in new technologies.

That was prophetic. Here’s an amazing rant blaming China.

Sorry State of Affairs in the EU

Innovation in the EU is in dead industries: Analog phones and diesel (by cheating).

The EU still strives to protect the small French farm. The EU lags the US and China on AI, EVs, phones, space exploration, and satellite launching.

Since the EU has zero participation in AI, it hope to regulate AI to death.

The only innovation we have seen in Germany is in diesel cheating.

Sorry Germany, Diesel is Dead

Flashback April 28, 2018: Bosch Announces Better Diesel Engine: Sorry Germany, Diesel is Dead

Sorry Bosh, diesel is dead. Upgrading diesel technology is mostly a waste of time and money even if Bosh is telling the truth this time.

The future is electric. Germany still wants to look backward.

Yes the future is electric.

My problem is not with the future, it has always been the path to get there on absurd schedules forced by the government with an infrastructure that still isn’t in place.

Biden mandated full electric instead of letting manufacturers develop hybrids. Losses have been immense.

Here’s a snip from Eurointelligence in my 2018 post.

This story reminds us of the German company that developed the last generation of analogue telephone exchanges in the 1990s, hoping to fight off the relentless advance of the digital technology. It was mature and stable. And probably with some technical advantages over the then still-not-fully-developed digital technologies. But it came too late.

We find it hard to believe that this technology can be introduced early enough and in sufficient quantities to prevent diesel bans in German and other European cities. And the latter is the reason for the acute sales crisis of diesel cars, which has turned into a self-fulfilling prophecy. At a time when the US and China are developing electrical smart cars, the fate of the ultimate diesel engine looks to be the same as that of the world’s best analogue telephone exchange.

Germany and the EU are still focused on the past and hoping to prevent an AI future. But good news, a scapegoat has been successfully identified.

Apple, Google, Microsoft, Tesla, and Nvdia could not exist in the EU because the regulators would have broken them up in the name of competition before they ever got big enough to be meaningful.

For Volkswagen, the Bumpy Road to Electric Vehicles Starts to Hit Home

The Wall Street Journal reports For Volkswagen, the Bumpy Road to Electric Vehicles Starts to Hit Home

EV sales in Germany have plummeted this year, with Tesla’s registrations in the country down 41% for the year through July, compared with the same period of 2023.

“There are plants dedicated to EVs that aren’t producing at the levels expected and costs are out of whack,” said Bernstein analyst Stephen Reitman.

Daniela Cavallo, the union leader who heads Volkswagen’s works council, vowed Monday to fight the move, which is a prerequisite for any potential plant closure in Germany.

Volkswagen can’t easily dial back its profit-sapping EV investments or production because its cars need to meet much stricter European emissions standards starting next year. Its fleet carbon emissions last year were 24.2% higher than they will need to be in 2025, according to data collated by Bernstein, compared with 19.6% for Mercedes-Benz and 9.7% for BMW.

Labor costs in Germany are the highest in Europe, according to an analysis by the German Association of the Automotive Industry. A German auto worker cost roughly €62 an hour last year—equivalent to roughly $68.50—compared with €23 for a Czech worker and €29 for a Spanish one. In Hungary, where BYD is building a factory to avoid European Union tariffs, auto workers are paid only €16 an hour.

Meanwhile, back in the US …

Ford Loses $132,000 on Each EV Produced

On April 26, I reported Ford Loses $132,000 on Each EV Produced, Good News, EV Sales Down 20 Percent

Ford (F) reports a huge loss on every EV. Sales are down 20 percent holding the losses to $1.3 billion.

Ford Cancels Plans for Electric SUV, Expects a $1.9 Billion Loss

On August 21, I noted Ford Cancels Plans for Electric SUV, Expects a $1.9 Billion Loss

Say goodbye to a vehicle that never should have been conceived in the first place. Customers don’t want it.

Lesson of the Day

Government setting outrageous goals, then telling business how they must deliver them never works very well.

Despite huge subsidies, Ford still cannot make ends meet on EVs.

Yet, due to government coercion, Ford is forced to try, try, and try again. If and when Ford succeeds, it will have more production capacity than it needs because EVs have less parts and are easier to build.