Volkswagen mulls closure of German factories
Why is Volkswagen considering the closures and how is the carmaker performing?
Carmaker Volkswagen (VW) is considering shutting down two German factories. They would be the carmaker’s first closures in its domestic market, says Jasper Jolly in The Guardian. The Wolfsburg-based manufacturer has informed its employee works council that it was looking at closing “at least one larger vehicle manufacturing plant and one component factory in Germany” in order to save billions of euros. These proposals underline the difficulties traditional European carmakers are having in “switching from profitable but polluting petrol and diesel cars to cleaner but currently less profitable electric vehicles”.
Why is Volkswagen considering the closures?
VW has been hit by unexpectedly poor demand for electric vehicles in Europe as well as a “shrinking market share in China, its most profitable market”, say Patricia Nilsson and Kana Inagaki in the Financial Times. However, its drastic decision to break with tradition has also been prompted by the fact that a savings programme launched last year has fallen short, with not enough workers taking up its offer of early retirement or redundancy.
VW’s operating margins have therefore continued to fall, reaching 2.3% in the first half of 2024, far below the 6.5% target it aims to reach by 2026. Finalising the closures will be a “major test” for CEO Oliver Blume, say Monica Raymund and Christoph Rauwald on Bloomberg. Union clashes “felled a number of his VW predecessors”, who all left after they “tried to push through efficiencies”.
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Part of the problem is VW’s “labyrinthine governance system”. Management must gain the support of both the billionaire Porsche-Piech family and labour unions for major decisions. The fact that the Lower Saxony government owns a 20% stake is also a problem, as while it supports VW’s cost-cutting efforts, it also insists that “alternative options” to closures must be explored.
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Matthew graduated from the University of Durham in 2004; he then gained an MSc, followed by a PhD at the London School of Economics.
He has previously written for a wide range of publications, including the Guardian and the Economist, and also helped to run a newsletter on terrorism. He has spent time at Lehman Brothers, Citigroup and the consultancy Lombard Street Research.
Matthew is the author of Superinvestors: Lessons from the greatest investors in history, published by Harriman House, which has been translated into several languages. His second book, Investing Explained: The Accessible Guide to Building an Investment Portfolio, is published by Kogan Page.
As senior writer, he writes the shares and politics & economics pages, as well as weekly Blowing It and Great Frauds in History columns He also writes a fortnightly reviews page and trading tips, as well as regular cover stories and multi-page investment focus features.
Follow Matthew on Twitter: @DrMatthewPartri
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