By AFP
December 2, 2024
Volkswagen is seeking to make major cost cuts as it faces myriad headwinds - Copyright AFP Bertrand GUAY
As Volkswagen seeks to push through a drastic restructuring with billions of euros in cuts, workers nationwide on Monday kicked off what could be a long wave of industrial action.
From high costs to management missteps and slowdowns in key markets, here are some of the key challenges facing the German car giant:
– High costs –
Europe’s biggest carmaker has repeatedly stressed that its costs are excessive and profit margins too low, particularly at its core VW brand.
Production costs in Germany are “clearly too high”, said a leaflet from VW’s management distributed to the workforce ahead of the first round of talks between executives and unions in September.
All areas would be examined — from development, to manufacturing and distribution — when it comes to cost-cutting, VW group CEO Oliver Blume told public broadcaster ZDF in an interview.
High electricity prices, which have risen since the energy crisis triggered by the Ukraine war, as well as elevated labour costs are a significant challenge for the 10-brand group in its home market.
Worker representatives say VW’s management now want to shutter at least three plants in Germany and cut tens of thousands of jobs.
Unions are fiercely resisting the plans. They began their industrial action Monday with so-called “warning strikes” — short walkouts typically used during ongoing negotiations.
But the powerful IG Metall Union has threatened strikes on a scale not seen in Germany for decades unless management dumps its most drastic plans.
They put forward their own proposals last month to make savings without the need for factory closures but the carmaker’s management rejected them.
Talks continue, with the next round due on December 9.
Stefan Bratzel, a German automotive expert, told AFP that VW needs to become “much leaner”, as the company has “too many employees who don’t work hard enough and too many committees”.
– China challenge –
Volkswagen — whose brands range from Skoda and Seat to Porsche and Audi — makes around a third of its sales in China, the world’s biggest auto market, but has been losing ground in recent times.
It has three joint ventures in the world’s second biggest economy, about 90,000 employees and more than 30 plants manufacturing vehicles and components.
But it has been hit hard by China’s economic slowdown coupled with fierce competition from local rivals, particularly when it comes to electric vehicles.
Chinese EV manufacturers, such as BYD, have captured market share with top-selling models packed with technology that appeal to local customers while VW has struggled with a troubled transition to electric cars.
– Strong links to the state –
Politics have played a key role at Volkswagen for decades. The state of Lower Saxony — home to VW’s historic Wolfsburg headquarters and several factories — holds 20 percent of the group’s voting shares.
This means it has a blocking minority, allowing it to stop key decisions.
This “hampers the company’s ability to adapt” and means it functions as “a state-owned company”, said automotive expert Ferdinand Dudenhoeffer.
In addition employee representatives sit on the supervisory board, and wield a veto over the creation and relocation of production sites.
It is also almost impossible to close plants against their will.
– Troubled electric transition –
VW has poured huge sums into its EV shift but the transition has been troubled.
It has launched the ID range of cars, such as the ID.3, but the vehicles have experienced problems with their software.
Former VW CEO Herbert Diess has been criticised for the development of software in-house via subsidiary Cariad, with observers saying the project was costly and botched, and has left the German group lagging behind.
It is hoping to turn around its fortunes with a $5.8-billion investment in US electric vehicle maker Rivian to create a joint venture, a deal that was announced in June.
Stellantis says goodbye to ‘performance psychopath’ CEO
By AFP
December 2, 2024
Carlos Tavares drove profits for years by cutting costs but the strategy recently failed for him at Stellantis - Copyright AFP/File JULIEN DE ROSA
Taimaz SZIRNIKS
Carlos Tavares, a self-proclaimed “performance psychopath” who drove auto giant Stellantis with aggressive cost-cutting and high car prices, reached the end of the road as CEO when his strategy hit a dead end.
Tavares engineered one of the most ambitious mergers in automotive history in 2021 when more than a dozen brands, including Jeep, Fiat, Chrysler, Peugeot and Citroen, were put under the same roof.
The Portuguese executive, who headed French group Peugeot-Citroen at the time, was appointed chief executive of the newly created French-Italian-American behemoth dubbed Stellantis.
His three-year tenure was marked by high profit margins that were the envy of its rivals in the auto industry, but the good times ended this year as sales plummeted in the United States, the group’s key market.
Stellantis announced his abrupt departure in a statement Sunday night that hinted at tensions in the boardroom.
Henri de Castries, an independent director on the Stellantis board, said in the statement that “different views have emerged” in recent weeks which led to the decision.
Tavares, 66, brought to Stellantis the same strategy that he had enforced at Peugeot-Citroen, which he had headed since 2014 when he took over at the French auto group.
He was demanding with his teams and his cost management included cutting jobs, closing factories and tough negotiations that exasperated parts suppliers.
Tavares championed a “pricing power” strategy for Stellantis brands, putting high prices on models and putting an end to discounts that weighed on margins.
After a series of record quarterly earnings, Stellantis cut its annual profit outlook in late September, citing a “deterioration” in the global car sector and problems in the American market.
The situation with Dodge cars and Ram trucks was particularly worrying for Stellantis executives and financial markets, with new vehicles piling up on dealer lots as high prices and quality concerns turned off customers.
– Stellantis ‘squeezed’ –
In Europe, the Fiat, Citroen and Maserati brands were penalised by the late arrival of new models, sometimes due to software problems.
“This is the end of the road for the strategy of cost cutting,” said German car analyst Matthias Schmidt.
“All the juice has been squeezed” in what has become a “very weak market” that refuses to return to pre-covid levels.
Stellantis, like Volkswagen, also tried to produce as many models as possible on the same platform.
But customers of its premium brands like DS, Alfa Romeo or Jeep were increasingly unwilling to pay a premium price for cars that weren’t all that different from Stellantis mass market brands.
“It became obvious that the vehicles were only rebadged Peugeots,” said Schmidt.
“You can only go so far in commanding a price premium,” he added.
The move upmarket by Korean and Chinese manufacturers also lured customers away from Stellantis premium brands.
For Schmidt, it was somewhat ironic given his past that Tavares “didn’t restructure even more in a weak market environment.”
The group recently announced the closure of a factory in Britain but spared factories in France and Italy that are operating below capacity.
Stellantis also ran out of road with its tight management of human resources, losing several senior managers in recent months, including three who jumped to work for Chinese giant BYD in Europe.
Stellantis announced in September it had begun looking for a successor to Tavares, who had been due to stand down when his current five-year contract expired in early 2026.
But with the problems piling up Stellantis’s board on Sunday unanimously accepted his immediate resignation.
The move failed to reassure investors, with the company’s shares falling around seven percent on Monday.
By AFP
December 2, 2024
Carlos Tavares drove profits for years by cutting costs but the strategy recently failed for him at Stellantis - Copyright AFP/File JULIEN DE ROSA
Taimaz SZIRNIKS
Carlos Tavares, a self-proclaimed “performance psychopath” who drove auto giant Stellantis with aggressive cost-cutting and high car prices, reached the end of the road as CEO when his strategy hit a dead end.
Tavares engineered one of the most ambitious mergers in automotive history in 2021 when more than a dozen brands, including Jeep, Fiat, Chrysler, Peugeot and Citroen, were put under the same roof.
The Portuguese executive, who headed French group Peugeot-Citroen at the time, was appointed chief executive of the newly created French-Italian-American behemoth dubbed Stellantis.
His three-year tenure was marked by high profit margins that were the envy of its rivals in the auto industry, but the good times ended this year as sales plummeted in the United States, the group’s key market.
Stellantis announced his abrupt departure in a statement Sunday night that hinted at tensions in the boardroom.
Henri de Castries, an independent director on the Stellantis board, said in the statement that “different views have emerged” in recent weeks which led to the decision.
Tavares, 66, brought to Stellantis the same strategy that he had enforced at Peugeot-Citroen, which he had headed since 2014 when he took over at the French auto group.
He was demanding with his teams and his cost management included cutting jobs, closing factories and tough negotiations that exasperated parts suppliers.
Tavares championed a “pricing power” strategy for Stellantis brands, putting high prices on models and putting an end to discounts that weighed on margins.
After a series of record quarterly earnings, Stellantis cut its annual profit outlook in late September, citing a “deterioration” in the global car sector and problems in the American market.
The situation with Dodge cars and Ram trucks was particularly worrying for Stellantis executives and financial markets, with new vehicles piling up on dealer lots as high prices and quality concerns turned off customers.
– Stellantis ‘squeezed’ –
In Europe, the Fiat, Citroen and Maserati brands were penalised by the late arrival of new models, sometimes due to software problems.
“This is the end of the road for the strategy of cost cutting,” said German car analyst Matthias Schmidt.
“All the juice has been squeezed” in what has become a “very weak market” that refuses to return to pre-covid levels.
Stellantis, like Volkswagen, also tried to produce as many models as possible on the same platform.
But customers of its premium brands like DS, Alfa Romeo or Jeep were increasingly unwilling to pay a premium price for cars that weren’t all that different from Stellantis mass market brands.
“It became obvious that the vehicles were only rebadged Peugeots,” said Schmidt.
“You can only go so far in commanding a price premium,” he added.
The move upmarket by Korean and Chinese manufacturers also lured customers away from Stellantis premium brands.
For Schmidt, it was somewhat ironic given his past that Tavares “didn’t restructure even more in a weak market environment.”
The group recently announced the closure of a factory in Britain but spared factories in France and Italy that are operating below capacity.
Stellantis also ran out of road with its tight management of human resources, losing several senior managers in recent months, including three who jumped to work for Chinese giant BYD in Europe.
Stellantis announced in September it had begun looking for a successor to Tavares, who had been due to stand down when his current five-year contract expired in early 2026.
But with the problems piling up Stellantis’s board on Sunday unanimously accepted his immediate resignation.
The move failed to reassure investors, with the company’s shares falling around seven percent on Monday.
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