Volkswagen's management will continue negotiations with the union representing approximately 0.12 million German workers on Thursday. The union is demanding a 7% pay raise, while Volkswagen is threatening to cut salaries by 10%. Due to the difficulty in reaching an agreement, the union is expected to start warning strikes in December to pressure management.

Volkswagen is currently striving to reduce expenses to address issues of poor sales of electric cars and weakening competitiveness in the Chinese market. The company's CEO, Oliver Blume, is trying to reduce spending in Germany as labor and energy costs in Germany are the highest in Europe.

Union representatives stated on Wednesday that Volkswagen's management aims to cut costs by 17 billion euros overall, with labor costs being only a small part of it. The company is considering taking measures more radical than the union is willing to support, including managing or selling several factories in Germany - breaking a taboo in a country known for easier consensus in labor relations.

According to insiders, Volkswagen's management has proposed selling the car factories in Osnabrück and Dresden. Insiders added that the company is also considering subcontracting at its Emden plant.

It is reported that Volkswagen's factory in Osnabrück currently has no production contracts signed beyond 2026, while the small factory in Dresden cannot provide the scale needed for cost-effective production. In addition, the Emden plant is expected to see a decline in output next year due to weak demand for electric cars in the market.

After the idea of closing factories was proposed by the management of Volkswagen, the union proposed additional cost reductions of 1.5 billion euros - including giving up part of the bonuses - to maintain the operation of the factories. However, there are still significant differences between the two sides. Volkswagen is seeking a larger scale of layoffs and insists on the need to reduce excess production capacity.

The union proposed reducing dividends, reducing part of the management income, employee bonuses for next year and 2026, and incorporating planned wage increases into a fund to pay for possible layoffs and reduced work. Volkswagen stated that it is studying these proposals, but added that it is currently unable to cancel the plan to close the factories.

Thorsten Gröger, chief negotiator for the union, said on Wednesday that if Volkswagen is not willing to compromise, then it needs to be prepared to deal with a labor dispute that this country has not seen in decades.

Plan to close local factories + abandon no layoff commitment

In early September, Volkswagen announced that it is considering closing two local German factories and ending an employment protection agreement that has been in place for over 20 years. If implemented, this would be the first time Volkswagen has closed a local factory since its establishment.

Oliver Blume, CEO of Volkswagen Group, said in a statement on September 2nd: "The European automotive industry is facing a very tough and severe situation." "The economic environment is becoming more severe, with new competitors entering the European market. In addition, Germany, as a manufacturing hub, is falling further behind in competitiveness." Blume added that as a result, the company "must now take decisive action".

Volkswagen Group stated that its internal brands need to undergo a 'comprehensive structural adjustment', and the current situation means that the possibility of closing car production and component plants cannot be ruled out. Thomas Schäfer, Head of Volkswagen Brand, stated in a declaration, 'The situation is extremely tense and cannot be solved by simple cost-cutting measures.' 'That is why we hope to begin discussions with employee representatives as soon as possible to explore the possibility of a sustainable restructuring of the brand.'

In addition, Volkswagen Group also stated that it feels it is necessary to terminate its job protection agreement - a job security program that has been in place since 1994 - in order to ensure the 'urgently needed structural adjustment to improve competitiveness in the short term'. It is reported that this agreement promises no layoffs until 2029 and covers Volkswagen factories in Wolfsburg, Hanover, Brunswick, Salzgitter, Kassel, Emden, and other locations.

Operating margin in Q3 hits a new low in four years! Cost reduction and efficiency improvement are urgently needed.

According to the financial report, in the first half of 2024, Volkswagen Group's revenue was 158.8 billion euros, a year-on-year increase of 1.6%; but operating profit was only 10.05 billion euros, a year-on-year decrease of 11.4%; operating margin was 6.3%, a 1 percentage point decrease from the same period last year; pre-tax net profit was 10.16 billion euros, a year-on-year decline of 14.6%; and free cash flow from the automotive business was 4.99 billion euros.

The decline in automotive sales is the direct cause of the decline in Volkswagen Group's performance in the first half of the year. According to the data, Volkswagen Group's sales in the first half of the year were 4.341 million vehicles, a decrease of 0.6% compared to the same period last year. Although the sales of mainstream market brands (Volkswagen, Skoda, Seat, etc.) increased by 1.8% to 2.494 million vehicles, the sales of high-end brands (Audi, Bentley, Lamborghini, etc.) decreased by 17.7% to 0.549 million vehicles, and the sales of sports luxury brands (Porsche) decreased by 11.1% to 0.152 million vehicles, which is undoubtedly the "cash cow" of the Volkswagen Group.

On the other hand, Volkswagen Group has made a lot of investments in promoting electrification and smart transformation, which has a significant impact on the group's profits. According to the data, Volkswagen Group's R&D investment in the first half of the year was 11.4 billion euros, a year-on-year increase of 11.7%; and the revenue of the software department CARIAD in the first half of the year was 0.426 billion euros, but the operating loss reached 1.18 billion euros.

Arno Antlitz emphasized that due to the lower-than-expected performance in the first half of this year, further cost reduction is needed in the second half in order to achieve the annual target. Among them, the Volkswagen brand will be the first to reduce costs, with a target of saving 10 billion euros by 2026.

Jefferies analysts led by Philippe Houchois stated in a report: "Deteriorating performance may accelerate restructuring decisions, especially as the Volkswagen brand continues to drag cash conversion rate to new lows, which may pose survival risks to the group."

In addition, the financial report shows that Volkswagen's operating profit for the third quarter was 2.86 billion euros (3.1 billion dollars), below the market's expected 3.89 billion euros; revenue was 78.5 billion euros, lower than the expected 76.66 billion euros. Both the revenue and operating profit of the company have decreased compared to the same period last year, with the operating margin dropping to 3.6%, the lowest level in over four years.

Volkswagen's Chief Financial Officer and Chief Operating Officer Arno Antlitz stated in a declaration that the operating margin of the core Volkswagen brand (where most job cuts have occurred) in the first nine months of this year was only 2%, highlighting the urgent need for significant cost reductions and efficiency improvements.