The iconic German carmaker, Volkswagen, is facing a wake-up call as its original brand struggles to remain competitive in the ever-evolving automotive industry. High costs and low productivity have rendered the Volkswagen brand less competitive in comparison to its counterparts. Thomas Schaefer, the company’s brand chief, addressed this issue during a staff meeting at the company’s headquarters in Wolfsburg, Germany. In this article, we will delve into the financial challenges faced by Volkswagen’s core brand and explore the steps being taken to address these issues.
The Financial Performance of Volkswagen’s Core Brand
Volkswagen’s core brand, founded in 1937, has been a cornerstone of the Volkswagen Group, which also includes brands like Porsche and Audi. While the VW brand has consistently achieved high sales volumes, its operating profit margins have been the lowest among the group’s mass-market brands. According to a corporate presentation, during the first three months of this year, Volkswagen’s brand reported the highest sales volumes but the lowest operating profit margins when compared to brands like Škoda and Seat.
This stark contrast in performance has prompted Volkswagen Group to focus on improving the financial performance of its core brand. The company aims to increase the VW brand’s return on sales from 3.6% in the previous year to 6.5% by 2026, as outlined in an investor presentation. With the shift towards the production of more electric cars, it has become imperative for Volkswagen to enhance the competitiveness of its core brand.
Identifying Challenges: Cost and Productivity
High costs and low productivity have been identified as the key challenges plaguing the Volkswagen brand. These issues have hindered its ability to compete effectively in the industry. During the staff meeting, Thomas Schaefer acknowledged the existence of pre-existing structures, processes, and high costs within the brand, which have contributed to its lack of competitiveness. To address these challenges, Volkswagen is taking a two-pronged approach, focusing on cost-cutting measures and improving productivity.
Cost-Cutting Measures: A Necessity for Competitiveness
Recognizing the urgent need to reduce costs, Volkswagen is actively pursuing a cost-cutting scheme at its core brand. The company is currently engaged in negotiations with its works council to implement a comprehensive savings program. This program, amounting to €10 billion ($10.9 billion), will include various cost-saving measures, including staff reductions. The company aims to take advantage of the “demographic curve” to reduce its workforce, with agreements on partial or early retirement being explored.
However, Volkswagen emphasizes that staff reductions will not be the sole means of achieving the €10 billion savings goal. Gunnar Kilian, a human resources board member, confirmed that the bulk of the savings would come from other measures aimed at improving efficiency. The exact details of these measures will be defined by the end of the year, demonstrating Volkswagen’s commitment to optimizing its cost structure while ensuring the well-being of its employees.
Boosting Productivity: A Path to Competitiveness
In addition to cost-cutting measures, Volkswagen is placing a strong emphasis on improving productivity within its core brand. The company recognizes the need to streamline processes, eliminate duplication, and shed any unnecessary ballast that hinders optimal performance. Kilian emphasized the importance of being brave and honest enough to discard redundant practices within the company. By doing so, Volkswagen aims to enhance productivity, enabling the brand to regain its competitive edge.
Shifting Towards Electric Cars: A Strategic Imperative
The transition to electric cars is a strategic imperative for Volkswagen and its core brand. As the automotive industry undergoes a paradigm shift towards sustainable mobility, Volkswagen is committed to embracing this change. The company has set ambitious goals for electric vehicle production and aims to become a leader in the electric car market. However, to achieve this, the financial performance of the core VW brand must be optimized.
Recognizing the need for differentiation and efficiency across all its mainstream brands, Volkswagen is actively working on better positioning and defining the unique value proposition of each brand. This differentiation will not only enhance customer appeal but also contribute to improved financial performance.
See first source: CNN
FAQ
What financial challenges is Volkswagen’s core brand facing?
Volkswagen’s core brand is grappling with high costs and low productivity, which have made it less competitive compared to other brands within the Volkswagen Group.
How does the financial performance of Volkswagen’s core brand compare to other brands within the Volkswagen Group?
While Volkswagen’s core brand has consistently achieved high sales volumes, its operating profit margins have been the lowest among the group’s mass-market brands, such as Škoda and Seat. This performance disparity prompted the company to focus on improving the financial performance of its core brand.
What are Volkswagen’s goals for improving the financial performance of its core brand?
Volkswagen aims to increase the VW brand’s return on sales from 3.6% in the previous year to 6.5% by 2026. To achieve this, the company is addressing the challenges of high costs and low productivity.
What steps is Volkswagen taking to address these challenges?
Volkswagen is implementing a two-pronged approach. First, it is pursuing a cost-cutting scheme that includes a comprehensive savings program amounting to €10 billion ($10.9 billion). Second, the company is focused on boosting productivity by streamlining processes and eliminating redundancy.
How does Volkswagen plan to achieve cost reductions without compromising employee well-being?
Volkswagen is engaging in negotiations with its works council to implement cost-saving measures, including staff reductions. However, the company emphasizes that staff reductions will not be the sole means of achieving the savings goal. The bulk of the savings is expected to come from other efficiency-improving measures, with agreements on partial or early retirement being explored.
Why is Volkswagen shifting its focus towards electric cars?
Volkswagen recognizes the shift towards electric cars as a strategic imperative in the automotive industry. The company has ambitious goals for electric vehicle production and aims to become a leader in the electric car market. However, to achieve this, the financial performance of the core VW brand must be optimized.
How is Volkswagen differentiating its mainstream brands and improving their unique value propositions?
Volkswagen is actively working on better positioning and defining the unique value proposition of each brand within its portfolio. This differentiation aims to enhance customer appeal and contribute to improved financial performance across all mainstream brands.
Featured Image Credit: Photo by Cesar Salazar; Unsplash – Thank you!
