Volkswagen majority stakeholder supports German factory closures

Auto manufacturer Volkswagen’s majority stakeholder, the billionaire Porsche-Piëch family, has revealed their strong support for shutting down numerous German plants, according to Financial Times. The Porsche-Piëch family is the majority owner of the German holding company Porsche SE, which in turn, is a controlling shareholder in Volkswagen Group. 

The support for factory shutdowns follows a proposal for reduced dividends suggested by German unions as a cost-cutting alternative to closing factories. 

However, this proposal has caused the Porsche-Piëch family to be more worried about the company’s global competitiveness in the long run, while maintaining that trimming the business size is the way to go. 

This is mainly due to Volkswagen’s current struggle with lagging European sales, as well as high labour costs and excess capacity. 

The billionaire family has already highlighted that only a significant cost-efficiency measure will be accepted as a solution. Porsche SE has also revealed that it may be compelled to heavily reduce its stake in Volkswagen, by almost 40%, because of the lack of financial planning data, as well as this ongoing uncertainty. 

With the holding company facing a high amount of debt already, due to its other investments, such as in Porsche AG, the impact of falling dividends, and a reduced Volkswagen stake could be significant in the long run. 

Volkswagen has already rejected a previous union proposal which suggested slashing dividends and bonuses, as well as cutting working hours. These measures would have resulted in cost savings of approximately €1.5bn. 

On the other hand, the car company’s suggested cost-cutting plans so far have included laying off thousands of German employees, as well as closing factories for the first time in the country and reducing pay by 10%. Volkswagen has also set a cost savings target of about €10bn.

This fear of potentially reduced dividends has also forced the Porsche-Piëch family to engage with the Volkswagen unions, despite previously trying to avoid doing so.

The marathon wage negotiations between Volkswagen and German worker unions IG Metall and AG entered the fifth round of talks this week, amid increasing concerns of Christmas strikes. 

Negotiations have been complicated and quite slow so far, with the fear of Christmas strikes looming, workers have already downed tools twice in the last month. 

Euronews has contacted Volkswagen for comment.

Volkswagen hit by higher Chinese competition

One of the main reasons for lagging Volkswagen sales in Europe is due to higher competition from Chinese rivals such as BYD, Geely and SAIC. This competition is especially challenging when it comes to electric vehicles (EVs), as Chinese EVs are often sold in Europe at cheaper prices.

Although the recent EU tariffs on the above Chinese car makers could go some way in supporting domestic European car companies, some Chinese automakers have already started pivoting to hybrid vehicles to export into the EU, as these are not covered under current tariffs yet. 

The ongoing European cost of living crisis has also meant that buyers are more hesitant to make big purchases, further impacting Volkswagen’s European sales.