Volkswagen expects difficult negotiations with the works council and unions. Turnover and profits are falling, management is threatening factory closures and mass layoffs. What role does politics play in that situation?
The term “Zeitenwende” (turning point) is currently trending. It was coined by Chancellor Olaf Scholz to describe the new security and political challenges facing Germany after the Russian attack on Ukraine. But that term is also used in other contexts today. Especially in economic policy. And Volkswagen is an outstanding example of the current challenges.
The German automobile industry is in trouble due to the increasing loss of importance of the internal combustion engine in major markets (USA, China, Europe) and the transition to the production of electric cars.
Electromobility is becoming increasingly important. The latest study by the consulting company PricewaterhouseCoopers (PwC) states that the number of battery-powered vehicle (BEV) registrations will increase significantly in the coming years. Market observers from Frankfurt also indicate which models are currently successful and which are not. From a German perspective, that’s worrying: Tesla’s Model Y is by far the best-selling car in all three major markets. Volkswagen models are far behind.
Electromobility eliminates jobs
Frank Schwope from the Hannover College of Secondary Entrepreneurship believes that this is one of the reasons for the problems of Germany’s largest car manufacturer, Volkswagen. When asked by DW, the automotive expert says that “big upheavals brought by electric mobility and new Chinese competitors” play an important role here. According to data from Volkswagen, these changes and upheavals are currently leading to a large drop in profits: in the third quarter of 2024, profits were almost 64 percent lower compared to the same period last year.
In response, the concern plans to save mainly on labor costs. Reducing wages by ten percent would already bring 800 million of the planned savings of four billion euros. In addition, according to the workers’ council, Volkswagen plans to close three factories and cut tens of thousands of jobs.
In Belgium, Audi, which is part of the Volkswagen concern, is already taking concrete steps and plans to stop the production of electric cars in Brussels at the end of February – around 3,000 people are employed there. This is what a representative of the Belgian CNE union told the AFP agency on Tuesday (October 29).
The president of the German Automobile Industry Association (VDA), Hildegard Miller, confirmed on the same day how serious the situation is. According to her, the transition to electric mobility will cost an additional 140,000 jobs in the German automotive industry over the next ten years. As of 2019, around 46,000 jobs have already been cut. “Transforming our industry is a mammoth task,” she told Reuters, adding: “It is crucial that the policy framework supports and accompanies that change.”
Politicians at Volkswagen
The call for “politics” always becomes loud when companies are looking for more favorable business conditions. In the case of Volkswagen, that call has a special weight, because in the concern politics participates in management.
Founded in 1938 as a state-owned enterprise, even after the defeat of Germany in the Second World War and the restart of production, Volkswagen did not become a completely independent company: the prime minister of the German state of Lower Saxony, in which the city of Wolfsburg, where Volkswagen is headquartered, is located, is a member of the supervisory board of that world concern.
Thus, the Prime Minister of Lower Saxony, Stefan Weil (SPD), finds himself in a double role when he demands “finding alternative solutions” and emphasizes that politics must provide its contribution. For example, he calls for the introduction of new incentives for the purchase of electric cars and the relaxation of the limit values for the exhaust gases of cars with internal combustion engines introduced by the European Union.
Resting on one’s laurels for too long
At the federal level in Germany, nothing has been done so far to change the economic framework conditions, according to the director of the Berlin branch of the American think tank German Marshall Fund, Suda David-Wilp. In an interview with DW, she attributed Germany’s economic difficulties to the fact that this and previous governments did not dare to undertake painful but necessary reforms.
“The years under the leadership of Mrs. Merkel,” specifies David-Wilp, “were quite comfortable for Germany.” The country was thus rich enough to go through the covid pandemic. But reforms are needed. And given the success of the populists, the established parties want Germans to feel economically safe so they don’t turn to parties that spread fear.” And that’s why they’re delaying changes.
For Volkswagen, the situation is further complicated by the fact that Berlin policy does not follow a consistent course in promoting electric mobility. While the SPD premier of Weil is seeking incentives for electric vehicles, Berlin’s “traffic light coalition” has mostly scrapped them. The parties in power, the SPD, the Greens and the FDP, do not lead a common policy. Thus, Frank Schwope, in addition to the “wrong decisions of the management of Volkswagen”, also blames the indecisive and unclear political course of the German government for the problems in the concern.
General economic crisis
At the same time, the Volkswagen crisis is only part of a much wider crisis. The former president of the Ifo institute, Hans-Werner Zinn, believes that Volkswagen is “only the first victim”. A victim of electro-mobility, the ban on internal combustion engines in the EU and high energy costs in Germany. Action must be taken against this, he says, because “deindustrialization is not a topic of the future, but a topic of the present”, Zin points out.
And Franciska Palmas, an economist at the London firm Kapital ekonomics, tells DW that “Volkswagen is symptomatic of the wider crisis of German industry.” This can be seen from the fact that industrial production in July was almost ten percent below the level since the beginning of 2023. It is currently in a six-year downtrend.
“Volkswagen is a symbol of the success of the German economy in the last 90 years,” Karsten Brzeski reminds DW. But now the company is a symbol of the crisis: “Volkswagen’s problems should be the final wake-up call for German politicians to make the country attractive again through investments and reforms.”
Will Volkswagen turn the faucet on football?
The crisis at Volkswagen could lead to a reconsideration of the company’s football sponsorship. This would strike a chord with many, as VW is not only an important partner nationally, but also internationally.
“We drive football” — this is the slogan Volkswagen uses to describe its football sponsorship. In a narrow sense, this means that the car giant provides vehicles for football clubs and national teams. In a broader sense, the message could also be “We improve football”. VW is committed to advancing football towards greater diversity and gender equality. But the question is to what extent the company will engage in this field in the future.
VW is currently facing a major crisis. It is reportedly planning to close three factories in Germany, and tens of thousands of employees fear for their jobs.
In this context, it is quite possible that VW will reduce its sponsorship activities in football.
Namely, the total financial support in this sector annually probably reaches a three-digit value in millions of euros. As part of the previous major crisis, following the 2015 emissions scandal, Volkswagen allowed some sponsorship deals to expire, such as those with traditional clubs such as FC Schalke 04 and 1860 Munich.
Volkswagen, founded in 1937 during the Nazi regime, was the world’s largest car manufacturer in 2023 with a record turnover of over 320 billion euros. Last year, it delivered more than nine million vehicles to its customers and employed nearly 685,000 people worldwide.
VfL Wolfsburg as a key project
Volkswagen’s financial support for football has almost 80 years of tradition. The club VfL Wolfsburg was created in 1945 after the Second World War from the “Volkswagen Workers’ Sports Association”. The Bundesliga club from VW’s headquarters has a “beacon function” in the sponsoring strategy, according to the company. The exact amount that VW invests in its club is not known, but it is believed to be between 70 and 80 million euros per year.
The Wolfsburg men’s team won the German championship in 2009 and the German cup in 2015. The women’s team is even more successful: it has won the Champions League twice, the German championship seven times and the German Cup eleven times.
In other German cities where it has factories, Volkswagen also supports local football clubs, including amateur ones, such as those in Hanover, Braunschweig, Kassel, Dresden and Zwickau.
Volkswagen also cooperates with the German record holder FC Bayern, in the youth sector. Audi, which is 100% owned by Volkswagen, is one of the main sponsors of Bayern, with an 8.3% share in the shares and provides official vehicles for professional players.
DFB contract with reduced scope
VW has been sponsoring the DFB Cup since 2012, and since 2019 it is the main partner of the largest national football association in the world. This year, both parties extended the sponsorship contract until 2028. According to media reports, VW reduced its support from 30 to around 20 million euros per year. VW provides vehicles for the men’s and women’s national teams.
On the international level, VW has been a mobility partner for football associations and national teams for years. Thus, he has contracts with world vice-champion France (since 2014), Italy (since 2023), the Netherlands (since 2021), Switzerland (since 2014), Finland (since 2017), Denmark (since 2019) and Luxembourg ( from 2018).
In two of the three host countries of the next World Cup, VW also cooperates: in Canada, it sponsors the national professional league for men, the Canadian Premier League, while in the USA it is the “presentation partner” of the US Soccer Federation. The VW logo is present on the training and jerseys of the American men’s and women’s national teams, and the contract lasts until the end of the World Cup in 2026.
Other international collaborations are also time-limited, so VW may let them expire due to savings.
That not every Volkswagen sports sponsorship contract is immutable was shown at the 2024 European Championship in Germany. After VW sponsored UEFA in previous championships, the company has decided to withdraw from sponsoring the tournament at home, giving way to Chinese electric vehicle manufacturer BYD. The reason, as stated, is “a program to increase efficiency and reduce costs at all levels (…) with the aim of preserving the future viability of Volkswagen”. So, VW has to save – also when it comes to sponsorships.
Source: German wave
Photo: Arhiva Autoblog.rs / Volkswagen
Source: autoblog.rs
