VW crisis: the brand must win back its core audience and China
According to many media outlets, Volkswagen's core brand VW is currently on fire. The brand has at least three problems – but all of them can be solved.
(Image: Martin Franz)
Anyone following the heated debate about the situation at VW might occasionally get the impression that the Volkswagen brand is a serious restructuring case that is in imminent danger of bankruptcy. This is quite unlikely, if only because the state of Lower Saxony is still a shareholder to this day. After deducting taxes, the Group reported a profit of 17.9 billion euros last year, which corresponds to an increase of 2.1 billion euros compared to 2022. Nevertheless, VW needs to get a few things under control. Solving them is not trivial in some cases, but not impossible either.
What has happened?
At the end of 2023, Volkswagen adopted a major cost-cutting plan aimed at significantly increasing the return on the VW core brand. Last week, it became known that this plan was not sufficient to achieve the targets. For the first time, redundancies and plant closures have therefore no longer been ruled out. However, neither of these can simply be implemented, as employee representation at VW is firmly anchored, the works council is powerful and the state of Lower Saxony, as a shareholder, also has a say.
This is why both demands are part of the political game: you go into battle with maximum positions, knowing full well that not all of them can be implemented. It is equally clear that the other side also knows that not everything can remain as it is at present. In this emerging debate, there is also a difference between what is being publicly propagated and what is going on in the background.
Overcapacity
The market leader is currently unable to operate all of its plants at full capacity. There is talk of up to 500,000 cars per year that Volkswagen is unable to sell. Sales in China are weakening, and in Europe there is a certain reluctance to make expensive purchases.
If plants cannot be fully utilized, a company's management has several options, and none of them are tempting. You can still build the cars and push them onto the market at a loss. Volkswagen has the power to do this, but this would ruin the already comparatively low return. Another solution would be to run the plants at reduced capacity, shut them down temporarily or close them.
Return on sales
In the Tagesthemen on September 4, it was reported that Volkswagen was only achieving a return on sales of one percent in some cases. This is not only low compared to the competition, it also severely restricts the economic scope of a company.
On the one hand, it restricts the ability to react quickly to changing market conditions. The discontinuation of state purchase subsidies for electric cars at the end of 2023 is just one example of this. On the other hand, there will be a lack of money for investments at some point.
Business with electric cars
After the emissions cheating that became public almost exactly nine years ago, VW underwent a fundamental change. Measured by industrial standards, the Group launched a battery-electric platform on the market within a very short space of time. It is probably also thanks to former Volkswagen CEO Herbert Diess that the first models were launched on the market before they were actually ready. A disastrous decision that permanently damaged the reputation of the ID models. Meanwhile, the worst sins have been rectified, but there is nothing left of the vague idea that the ID.3, for example, could one day replace the Golf.
In addition, Volkswagen's course of prioritizing the development of electric cars has not yet paid off. After the end of state purchase subsidies, demand in Germany has collapsed. If you wanted to be cynical, you could argue that this proves the effectiveness of tax incentives. However, it rather shows that reliable framework conditions are needed. Politicians still have some catching up to do in this respect. For example, when Sahra Wagenknecht points out that we are building the best combustion engines in the world, this is perhaps not fundamentally wrong. However, the question of what this means in the long term remains unanswered.
Business in China
Volkswagen was the market leader in China for decades. Around 40 percent of the Group's cars are sold there. Volkswagen is still a power there, albeit a shrinking one. Although the majority of cars registered for the first time in China also have a combustion engine, the proportion of electric cars has risen sharply in recent years. In this environment, Volkswagen is on the one hand finding it difficult to appeal to customers' tastes. On the other hand, the Communist Party is doing a lot to support the growing car industry in its own country.
What needs to be done?
Volkswagen's core brand VW will probably not be able to avoid a tough and painful austerity program, especially for the workforce. It can hope that the economy will pick up again next year, but there are a few things that VW needs to work on. The software has improved, but it is struggling against Android Automotive.
I believe that the brand's core audience prefers a conservative design. The ID.3 doesn't really fit the bill. In addition, the cars used to look superficially high-quality. Why VW allowed this point to be taken out of its hands is still somewhat incomprehensible today. Above all, however, VW must also succeed with electric cars in China. If it does not succeed, everything else will be in vain.
More about the VW brand
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VW: Base model of the ID.3 becomes cheaper – temporarily
VW Transporter and Caravelle T7: Electrified for the first time
VW ID.7 GTX driving report: top model only slightly faster
(mfz)