Analysis-Volkswagen seeks new era in Germany with | Stock News

By Victoria Waldersee and Christina Amann

BERLIN (Reuters) – For all its speak of radical change, Volkswagen (ETR:)’s cost-cutting deal in Germany depends closely on the automaker’s custom of cooperation between managers and employees, in accordance with particulars disclosed by company sources.

That has left some traders and analysts questioning whether or not it could ship on guarantees to cut capability and 35,000 jobs – modifications that managers say are important to the business’s survival amid weak demand and low-cost Chinese language competitors.

The deal was struck days earlier than Christmas, and since employees returned from the vacations unions have been holding conferences throughout German factories – some with board members in attendance – to elucidate it, in accordance with two labour sources.

The settlement entails every manufacturing unit being given its own price discount goal, with project groups of labour representatives and managers answerable for determining how to ship it and increase productiveness, measured by the quantity of automobiles produced per employee, in accordance with two sources close to management.

Senior figures from each side will give progress studies at a quarterly assembly, the management sources added, emphasising that if interim price discount targets will not be met, negotiations could need to start again.

It is a model that bears all of the hallmarks of Volkswagen’s custom of cooperation and compromise, reasonably than change imposed from the highest that may have introduced more certainty, but in addition have run the risk of damaging strikes.

Many questions stay, from how the carmaker will lose so many employees with out laying anybody off, to when the promised manufacturing capability cuts will occur, to what the long-term future holds for plants with empty halls.

That has left some traders underwhelmed, with Volkswagen shares trading beneath ranges seen in October, earlier than a plunge in quarterly earnings.

“People don’t have the patience to invest in an auto stock that trades predominantly on next year’s earnings, with the hope that 3-5 years out, the company will restore its profitability,” said Patrick Hummel, auto analyst at UBS. “The market will anticipate them to speak concerning the building blocks – what’s the backside line influence in 2025?”

The stakes are high. While the Volkswagen group spans brands from the upmarket Audi to the mass-market SEAT and Skoda, its core namesake brand – the bulk of its German business – accounted for more than half of its vehicle sales in 2023.

CUTTING CAPACITY

During protracted talks, unions said the company raised the prospect of closing three to four factories. Volkswagen declined to give a specific figure, but said repeatedly it could not rule plant closures out.

In the final deal, the two sides agreed to end production in 2025 at a Dresden facility, which employs 300 people, and in 2027 at an Osnabrueck plant, employing around 2,300, but committed to finding alternative uses for the sites, which could include new investors.

An all-electric factory in Zwickau will lose one production line but receive new investment in the form of a recycling facility for second-hand combustion and electric vehicles, due to go into production from 2027, according to a labour spokesperson from the factory.

But new investments are contingent on meeting cost-cutting targets, as finance chief Arno Antlitz made clear in recent comments to investors seen by Reuters.

Remaining capacity reductions will come from cutting two production lines at the company’s Wolfsburg headquarters.

Investors and analysts are unclear how well this approach will reduce fixed costs compared with closing plants altogether. Volkswagen has said the deal will save 15 billion euros ($15.6 billion) in the “medium time period”, without giving specifics. A spokesperson declined to comment on any interim targets.

“It is exhausting to sq. the super-tough narrative of having reached a tipping level and getting into all weapons blazing, with the settlement that got here out,” said Stephen Reitman, analyst at Bernstein Research who has followed Volkswagen for decades.

‘VULNERABLE AND ACCOUNTABLE’

Uncertain too is how the company will shed 35,000 jobs from its workforce. Volkswagen promised in 2016 to cut 30,000 jobs, but failed to shrink the total size of the workforce – roughly 120,000, then and now – because of hiring in other areas.

It hopes to achieve its target by not replacing workers who retire, and offering early or partial retirement schemes, a labour spokesperson said, highlighting that a clause in the deal that guarantees jobs until 2030 – a win for unions after Volkswagen scrapped a previous job guarantee agreement in September – meant that any departures would be voluntary.

Moritz Kronenberger, portfolio manager at Volkswagen shareholder Union Investment, said that while the deal may look disappointing from the outside, it made deeper cuts than some had expected given unions and local politicians hold veto power on Volkswagen’s supervisory board.

“(CEO Oliver Blume) caught his neck far out, made huge guarantees, and stirred up a whirlwind, inside and outdoors the company,” stated Kronenberger.

“Blume remains the right CEO and is taking the right measures. But the cost structure of the company needs to look very different in two years. Volkswagen has to show that it’s armed for the future and can make attractive products,” he stated, including: “Blume has made himself vulnerable and accountable.”

($1 = 0.9602 euros)