Volkswagen

Manager Magazin reports that Volkswagen AG aims to cut costs by 20% across all brands by 2028. According to the publication, the CEO and CFO held a closed-door meeting in mid-January to discuss additional cost-cutting initiatives aimed at restoring sustainable profitability amid the slump in China, rising tariffs, and an increasingly competitive environment. 

No specific details have been disclosed, but plant closures are reportedly being considered. We remain skeptical about potential plant closures in Germany, given the strength of regional stakeholders and labor representation. 

This new program would come in addition to the existing “Road to 6.5” performance program at the Volkswagen brand, which targets €10 billion in savings by 2026, as well as the previously announced reduction of 35,000 jobs by 2030, equivalent to roughly €1.5 billion in annual labor cost savings, and a capacity reduction of 734,000 units. 

Overall, we believe this reinforces our bearish view on Volkswagen and the OEM sector more broadly. Registration levels in Europe remain structurally below pre-COVID levels, leading to persistent overcapacity. In China, customer behavior has shifted rapidly toward domestic brands, resulting in a structural loss of competitiveness for European OEMs. At the same time, competition has intensified across all regions due to Chinese OEMs— both emerging markets and Europe — while tariffs in the U.S. add profitability pressure on the only region that is insulated from significant competition. 

In our view, there are no longer any clear “cash cow” regions for global OEMs. As a result, groups are being forced to structurally adjust their cost bases simply to remain competitive in what has become a structurally lower-margin environment.

This is an interesting turn of events. Our expert agrees with our analyst and the situation is bad. But if there is now a general consensus to substantially cut costs, with the agreement of the unions, then things can be turned around.  Furthermore, our expert us also puzzled by Stellantis' announcement to reintroduce diesel engines in its range of makes and models. Could it be that they expect a softening of the EU's position on the matter? 

In all, while our expert remains cautious on the sector, he sees reasons to be hopeful. And in any case, if confirmed that the willingness to cut costs at VOW is a real positive over the long run.