The Volkswagen Group is preparing for a substantial reduction in spending, aiming for a 20% cost cut across all brands by 2028. This move comes as the company faces headwinds in key markets, including China, and intensifying global competition. The plan, reportedly discussed by CEO Oliver Blume and CFO Arno Antlitz, could involve drastic measures, including potential plant closures.
The Pressure to Cut Costs
According to reports from German publications Manager Magazin and Spiegel, the VW Group is seeking to save approximately €60 billion ($65.7 billion USD) by 2028. This is despite already implementing earlier cost-saving measures, which yielded double-digit billion-euro savings. The urgency stems from several converging factors:
- Declining Sales in China: Volkswagen’s deliveries in China have plummeted by 36% in six years, falling from 4.23 million units in 2019 to 2.69 million in 2023. This is a critical issue, as China is a major revenue source for the group.
- Trade Barriers in the US: Tariffs and market conditions in the United States are negatively impacting VW’s profitability.
- Increased Global Competition: The automotive sector is becoming increasingly competitive, with rivals aggressively pursuing market share.
The situation is further complicated by the fact that Volkswagen has already announced plans to cut 35,000 jobs in Germany by 2030, with additional savings expected through workforce reductions and shift eliminations.
Potential Consequences: Plant Closures
While no decisions have been officially confirmed, the possibility of plant closures is on the table. VW recently shut down its Dresden plant, marking the first German factory closure in 88 years. The company is reportedly considering additional closures to meet its aggressive cost-cutting targets.
Future Plans: Affordable EVs
Despite the financial pressure, Volkswagen is also investing in future growth. The company plans to launch a new range of more affordable electric vehicles, including the €25,000 ID. Polo and a €20,000 entry-level EV by 2027. Sister brands Audi, Skoda, and Cupra will also expand their EV offerings in the coming years.
The VW Group is expected to provide further details on March 10 during its annual results presentation. The company’s global sales slipped by 0.5% in 2023, allowing Toyota to remain the world’s best-selling automaker for the sixth consecutive year.
Ultimately, Volkswagen’s aggressive cost-cutting measures reflect a broader trend in the automotive industry, where manufacturers are under increasing pressure to reduce spending while simultaneously investing in the transition to electric vehicles. This will likely result in painful decisions for employees, restructuring, and potential market consolidation.
