Is Volkswagen’s Core Brand Losing Competitiveness?

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Introduction

Volkswagen, one of the world’s largest car manufacturers, is facing significant financial challenges within its core brand. According to Thomas Schaefer, the company’s brand chief, the Volkswagen brand is “no longer competitive” due to high costs and low productivity. This revelation has prompted the company to focus on improving the financial performance of its globally renowned namesake car brand. As Volkswagen Group shifts its production focus towards electric vehicles, it becomes crucial for the VW brand to address its competitiveness. In this article, we will explore the reasons behind Volkswagen’s brand struggles, the steps the company is taking to improve the situation, and the future outlook for the VW brand.

The Financial Performance of Volkswagen’s VW Brand

During the first three months of this year, Volkswagen’s core brand experienced the highest sales volumes among VW Group’s mass-market brands, which include Škoda and Seat. However, it also had the lowest operating profit margins. This disparity highlights the need for the VW brand to enhance its financial performance. In 2019, the VW brand’s return on sales stood at 3.6%. To address this issue, Volkswagen aims to increase the brand’s return on sales to 6.5% by 2026, as stated in an investor presentation.

Identifying Challenges: High Costs and Low Productivity

The primary factors contributing to the lack of competitiveness in Volkswagen’s core brand are high costs and low productivity. Schaefer emphasized the need to address pre-existing structures, processes, and inefficiencies that hinder the brand’s performance. Volkswagen recognizes the importance of being brave enough to discard redundant practices and streamline operations for improved results. Gunnar Kilian, a member of the human resources board, emphasized the significance of eliminating duplication and unnecessary expenses within the company.

Transitioning to Electric Cars: The Urgency for Efficiency

As Volkswagen Group undergoes a transition to electric vehicles, the urgency for efficiency becomes paramount. The parent company’s €10 billion ($10.9 billion) savings program aims to boost efficiency across all brands, starting with the VW brand. Volkswagen acknowledges the need for cost-cutting measures to ensure a smooth transition to electric cars. Negotiations with the works council are currently underway to implement the cost-cutting scheme, which includes staff reductions.

Staff Reductions and Retirement Agreements

To achieve the €10 billion savings goal, Volkswagen plans to reduce its workforce. The company intends to utilize the “demographic curve” to its advantage by encouraging partial or early retirement agreements. By aligning its workforce size with the changing demographics, Volkswagen aims to optimize its cost structure. However, it is important to note that staff reductions alone will not be sufficient to achieve the savings target. Additional measures will be implemented to ensure the financial viability of the VW brand.

The Path to Increased Competitiveness

Volkswagen is keen on improving the performance of all its mainstream brands, with a specific focus on the VW brand. The company aims to achieve better differentiation among its brands while simultaneously reducing wasteful spending. By streamlining operations, eliminating redundancies, and implementing cost-cutting measures, Volkswagen is determined to regain its competitive edge. The full details of the measures to enhance competitiveness will be defined by the end of the year.

Conclusion

Volkswagen’s core brand, the VW brand, is facing financial challenges due to high costs and low productivity. As the automotive industry undergoes a significant shift towards electric vehicles, Volkswagen recognizes the urgency to improve the brand’s competitiveness. By addressing pre-existing structures, streamlining operations, and implementing cost-cutting measures, Volkswagen aims to enhance the financial performance of its VW brand. With a strong commitment to efficiency and differentiation, Volkswagen is determined to regain its competitive position in the market and secure a successful future for the VW brand.

Disclaimer: The information presented in this article is based on publicly available sources and is for informational purposes only. The views and opinions expressed in this article are those of the author and do not necessarily reflect the official policy or position of Volkswagen.