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It was just six weeks ago that we published an article here entitled contribution published under the same headline. In it, we described the extremely difficult situation in which the VW Group currently finds itself. Perhaps some readers smiled at the strong words we used to describe the current dilemma facing Germany's largest car manufacturer. Since the beginning of this week at the latest, it should be clear to everyone that our analysis was, unfortunately, spot on. While the latest statements from the group's management were still rather vague, the supervisory board and the IG Metall trade union have now made their position clear and outlined the true extent of the impending scrapping of the group.
Three out of ten car factories in Germany are to be closed. To be precise: at least three, whatever that means! All employees are to receive a salaryREDUCTION will have to accept 10 %. There are also expected to be massive job cuts in the seven remaining plants. There will be mass redundancies for operational reasons. 30,000 of the 120,000 jobs in Germany are to be cut. That is a quarter of the entire workforce in Germany!
Now to the other side of the negotiating table: IG Metall is demanding a 7% wage increase. Chancellor Scholz has his spokesperson announce that VW should please retain all locations and thus the factories and jobs there. The reasoning: „... namely, that possible wrong management decisions from the past must not be at the expense of the employees.“.
The search for the culprits – Passing the buck at the highest level
What did management do wrong – apart from manipulating diesel emissions? Yes, perhaps they initially overlooked or underestimated the issue of e-mobility. Perhaps they then too much blindly obeyed the government's climate targets by focusing on electric vehicles. Ultimately, the EU's CO2emissions in the fleet average in order to avoid penalties. And this works great with electric cars, because, interestingly, they are estimated to have zero emissions.
Perhaps consumers were also misjudged, and it was not anticipated that the majority of them did not want to drive electric cars and initially bought them mainly to take advantage of government subsidies. Perhaps it was also impossible to foresee that government subsidies for electric cars would be withdrawn. And perhaps it was also impossible to read the automotive tea leaves and predict that Chinese car manufacturers would flood Europe with much cheaper, subsidised electric cars from the Middle Kingdom. To become a member of the Volkswagen Group's executive board, you need a thorough education, including a university degree, technical expertise, experience in the industry and a certain killer instinct towards colleagues during your career advancement. To our knowledge, clairvoyant abilities are not a criterion for application. It is therefore completely normal for corporate decisions made in the boardroom to sometimes be overtaken by reality and prove to be suboptimal in retrospect. To err is human and not a crime.
That's the insidious wave...
Let's think about this dilemma a little further. If VW has a cold, its suppliers get a severe case of the flu. If VW really has to close locations, this will hit its suppliers hard. Mass layoffs and, in the worst case, bankruptcies are also very likely to follow. Unfortunately, VW's production sites are all located in the structurally weaker north and east of Germany. Entire regions depend on jobs at VW and its suppliers, such as Emden, Kassel, Salzgitter, Wolfsburg and Zwickau. If one of these plants has to close, it will have an impact on thousands upon thousands of families in the region that is impossible to imagine today.
There is another party at the negotiating table: the state of Lower Saxony. The state government has a right of veto on all corporate decisions and naturally wants to preserve jobs and locations in its own state. After all, six of the ten domestic locations are in Lower Saxony, including the commercial vehicle plant in Hanover.
For the group as a whole, the cutbacks in Germany are less dramatic. In recent years, the group has gradually established plants in all parts of the world: at five locations in China, in India, North, Central and South America – even in South Africa. European production facilities have been built in Spain, Portugal and Slovakia. So is there still a need for production facilities in Germany, with its expensive and cumbersome production conditions and bureaucratic monster? The local sales market has long since lost its importance for VW.
And amid all this misery, the IG Metall trade union has now announced a long and hard labour dispute. This is starting right now. Of course, the demands of the employee representatives are reasonable and understandable. They want wage increases to compensate for general price increases. They want to maintain their standard of living and, above all, have job security. Who wouldn't want that? On the other hand, one must also understand the board of directors. Their primary task is to keep the company afloat, or at least as much of it as possible. A viable compromise that could satisfy all sides in this crisis is nowhere in sight.
We discussed in the editorial office under which heading we should publish this article. We ultimately decided on „Political Education“. The current situation at VW reveals market mechanisms more clearly than perhaps ever before in Germany's recent economic history. The structural problems that have arisen in Germany will not be limited to VW. Other car manufacturers will not be spared the necessary restructuring. Nor will the many suppliers. Ultimately, the slump in sales of Volkswagen cars will also affect dealers. This effect will be exacerbated by the fact that VW – like Tesla before it – is entering the direct sales market. In future, you will be able to buy your electric car from the revived VW brand. scout configure and purchase directly online. The aim is to increase returns by absorbing the retailer's margin.
This example will also provide a good opportunity to see how the federal government is dealing with the situation and how any government programmes to counteract it are working. That is, if the coalition can agree on support measures for the beleaguered automotive industry. It will take a huge, cross-party effort to pull this cart out of the proverbial mud. This time, a placebo that reduces the retention period for files from ten to eight years, as recently decided by the cabinet, will not suffice. Industrial production in Germany may need to be completely rethought. How did Roman Herzog put it so aptly in his Berlin speech 25 years ago? „Germany needs a jolt.“ Even back then, the Federal President's famous speech was about the effects of globalisation. A quarter of a century later, this is still the issue today. The cause of VW's current dilemma is still globalisation. It has long been known that cars can be produced more cheaply in other parts of the world. However, these cars are now practically equivalent in quality to those manufactured in this country. Made in Germany is no longer THE A seal of quality, innovation and longevity around the world. This realisation is painful. But the sooner we internalise it, the sooner we can find solutions and ways out of the crisis. Above all, however, we must do one thing: WOOL. The next few weeks will definitely be exciting.
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