What if VW only sells eight million cars a year? The company would then have to drastically tighten its recently decided austerity measures, say insiders.
Dusseldorf. After months of dispute, the supervisory board of Volkswagen (VW) has just agreed on the toughest restructuring plan in the company's history. Tens of thousands of jobs are to be lost and investments are to be cut. The location question for several German plants still remains open.
But there is growing concern within the group that even the new savings plan might not be enough. CEO Oliver Blume and CFO Arno Antlitz are therefore currently calculating a worst-case scenario. This is likely to significantly increase the need for savings in Wolfsburg.
Accordingly, VW, the largest car company in Europe and number two in the world, is preparing for a much tougher crisis in its restructuring than previously known. If the group only sells around eight million vehicles annually by 2030, according to information from the Handelsblatt, the company would have to improve its operating result by more than 40 billion euros in order to achieve the planned target margin of nine percent. An insider speaks of up to 42 billion euros.
VW has so far calculated that it will sell nine million vehicles per year by 2030. In order to achieve the targeted target margin, the result would have to be improved accordingly if sales were one million fewer cars.
The new earnings targets mentioned of around 40 billion euros are approximate values and are probably not yet final, according to insiders. However, corporate and supervisory board circles consider it to be realistic. The numbers are “not completely taken out of thin air,” says one decision-maker. VW did not want to comment on the information on internal scenarios and figures.
So far, the group is officially expecting an improvement in earnings of 30.9 billion euros by the end of the decade. However, the worst-case scenario was already indicated in the supervisory board's resolution last week.
There is literally talk of a “risk sensitivity” of “8.0 million units” by 2030. In addition, Volkswagen assumes in the crisis scenario that prices will fall by one percent every year, for example because discounts are necessary.
This calculation is intended to reflect what will happen if the current decline in sales continues under difficult market conditions. However, it was not yet known how expensive this scenario could be for the car manufacturer.
Even Blume's basic scenario is demanding. With nine million vehicles, the operating margin is expected to rise to nine percent by 2030 - currently it is 3.8 percent. But so far only around half of the necessary improvement in results has been backed by concrete measures: 15.4 billion euros as of August 19th.
In the eight million scenario, the open gap would grow to at least 25 billion euros. The group would therefore have to raise double-digit billions in addition to the cuts already planned.
Enormous sums are already being raised for the largest VW renovation of all time. Volkswagen is calculating restructuring costs of up to ten billion euros for the newly planned job cuts alone - including for partial retirement, severance pay and social plans.
If the four plants at risk in Emden, Zwickau, Hanover and Neckarsulm stop producing cars, internal calculations suggest that another six billion euros could be added. Overall, the renovation could initially cost up to 16 billion euros.
The car tariffs in the USA, the declining Chinese business and the wars in the Middle East and Ukraine are already having a massive impact on VW sales figures: Group sales volume in the first half of the year fell by six percent compared to the already comparatively weak previous year. For the whole of last year, deliveries fell below the important nine million vehicle mark for the first time since the corona pandemic.
CEO Blume recently emphasized several times to investors that VW wanted to sell more than nine million cars with its current ten brands. “Our ambition when it comes to sales is higher,” he said in April, for example.
At the same time, Blume is consciously preparing the company for the eventuality that this ambition is missed. In July he said the break-even point should fall to fewer than eight million vehicles. Companies call the break-even point the sales volume above which they cover their costs and move into the profit zone.
This logic is also reflected in the internal long-term planning. As the Handelsblatt reported in July based on information from corporate circles, the range there ranges from the “best case” of ten million vehicles per year in the long term to a “worst case” of just eight million cars sold.
In the best case, VW would have to improve its result in terms of the target margin by less than 31 billion euros; in the worst case, it would have to tighten the cost-cutting measures again. A company spokesman did not want to comment on the scenarios at the time.
The management around Blume officially plans to continue growing. In the future plan, the board mentions the export business from China and North America, which is intended to create additional volumes. India is seen as another hope. As is well known, VW had already made a mistake there years ago - and is now trying to restart with the conglomerate JSW from Mumbai as a partner.
In corporate circles, however, people point out that the ten million vehicle scenario has currently become significantly more unrealistic than a nine or eight million vehicle scenario. The reason is above all: China.
By the end of July alone, total car sales in China had fallen by almost 20 percent to 10.3 million vehicles, according to the Japanese data service provider Marklines. In the same period last year, 12.8 million cars were sold there.
The market is now weakening so much that Chinese manufacturers such as BYD, Chery and Geely are shipping more and more cars abroad, putting VW under pressure in Europe. At the same time, falling demand in China is exacerbating the ruinous local price war among the more than 100 car brands on offer.
VW China boss Ralf Brandstätter has therefore already significantly adjusted his expectations for the coming years to the new realities. According to the current resolution, the group only expects around 2.7 million vehicles to be sold in China by 2030.
In peak years, sales there amounted to more than four million. The market share should remain stable at around eleven percent. In 2016 it was still more than 15 percent.
The production network in the country is also expected to continue to shrink - through “factory closures, factory optimization and other structural measures,” as internal documents state. Further cuts are also being examined at Volkswagen's Chinese joint venture partners SAIC and FAW. It is already clear that the China region will have to make do with 1.6 billion euros less in the group's next investment planning.
Just a few years ago, volume planning with a minus sign in Wolfsburg would have been hardly conceivable. For years, sales at Europe's largest car manufacturer only knew one way: up.
In the 2010s alone, VW increased its annual deliveries by more than 50 percent during the era of company leader Martin Winterkorn. “There was this absolute desire to win and be number one,” says someone who lived through that time.
In the two years after the diesel scandal, VW overtook Toyota in global sales and took the lead among global car manufacturers in 2016 and 2017. In 2019, the Wolfsburg-based company even reached the eleven million mark in deliveries.
Then the corona pandemic came – and the old growth logic ended. “Let’s not kid ourselves: the times before the pandemic are not coming back,” says a company insider.
However, the group's factory network is still designed for a larger VW world. The group is already reducing extra capacity for the nine million scenario.
In China, capacities for 500,000 cars are to be “calculated” by the end of the decade – the same amount in Europe. For the Emden, Zwickau, Hanover and Neckarsulm locations, the future remains open for now.
VW boss Blume is therefore continuing to look for “intelligent solutions” for locations that might no longer be needed in the car business at some point. It was only on Monday that the company announced that the car manufacturer had agreed with the state of Lower Saxony and the financial investor Aurelius to turn the factory in Osnabrück into a center for security and defense technology.
In addition to armaments, Blume's future plan also includes robotics, chips, energy storage and the circular economy as possible new business areas. The closer Volkswagen gets to eight million cars, the less likely it will be enough to just build cars.
