An ‘earthquake’ at Volkswagen – and a crisis for Germany?

‘Earthquake at Volkswagen” ran the stark headline in the Wolfsburger Nachrichten , the newspaper serving the north German city that is synonymous with the carmaker.

The news that the crisis-stricken company was weighing up the closure of factories in Germany for the first time in its history, and prematurely dissolving its 30-year-old employment protection agreement as part of an attempt to save around €10bn (£8.4bn), had barely filtered through to the workers emerging from Gate 17 at VW’s main factory in Wolfsburg on Monday, where a lone reporter had been dispatched to capture reaction at shift’s end.

But they did not express surprise. “The mood has been in the doldrums for some time,” one said. Another spoke of an unusually “high rate of sickness” among workers, who were stressed by the sense of doom looming over the company – and by the mood of uncertainty, evident most recently in cancelled shift work. “We surely knew something was cooking,” said another.

Two days later, company executives and an estimated 15,000 workers – 10,000 who had packed into a large hall at the Wolfsburg plant, the rest, who couldn’t squeeze in, watching on screens outside – faced each other in a tense showdown.

Workers unleashed their collective anger, unfurling banners and chanting protest slogans, among them: “We’re Volkswagen, you are not.” For about 20 minutes, according to eyewitnesses (media were excluded from the hall), the din from the chants and whistles prevented the bosses from speaking. Instead, they stayed behind a long table, stony-faced, looking a little embarrassed. Dressed in open-necked white shirts and dark jackets, their summer tans appeared to have faded in the bright lights and the frosty atmosphere.

“We are short of around 500,000 car sales a year,” VW’s financial chief, Arno Antlitz, reportedly told the hall. That, he said, was the equivalent of production from two factories. “It’s not to do with our product or poor performance. The market is simply not there any more.” He gave the company “one or two years” to turn the situation around. Experts estimate that VW has about 20,000 employees too many.

Oliver Blume, chief executive of Volkswagen Group, might have been a father addressing his family at the dinner table as he told the employees in no uncertain terms that the company had been living beyond its means – drawing an estimated annual €1.5bn from its cashflow for around 15 years – and that things would have to change. He compared the situation to a “family kitty” which “by month’s end is empty”.

Sometimes there is a kindly relative who will step in to pay for extras, such as a new television, he said, before bluntly pointing out that China had in effect been playing that role for years, with sales in the country bankrolling the company.

Blume – a local boy who fully understands the extent to which VW underpins the economy, and by extension the identity, of the state of Lower Saxony – at one point appeared to let his mask slip, displaying his emotions and talking of his wish to “protect the VW family”.

In a sign of the passion which is likely to shape the battle that is to follow, Daniela Cavallo, head of the works council representing the company’s 120,000 employees in Germany, retorted: “We are the VW family, and a family leaves no one behind.” She has promised “bitter resistance” to the company’s austerity mandate, insisting: “We will not tolerate being liquidated.” Strikes – a rare occurrence in the company’s history – cannot be ruled out.

What is at stake for the 87-year-old company – founded under the direction of the Nazi government and propelled by the dream of producing a budget “people’s car” or “Volkswagen” – is not just Wolfsburg, or Lower Saxony, or the six other locations across Germany, from Emden to Zwickau, where VW is deeply established. “A crisis at VW … is a crisis for Germany,” Cavallo said.

The last big setback VW faced – the so-called dieselgate scandal in 2015-16, when the manufacturer was found to have falsified emissions tests that made its vehicles appear more climate-friendly than they were – cost it an estimated €30bn in compensation payments worldwide, as well as taking an untold toll on its reputation as a symbol of German technical prowess and reliability.

The loss back then in tax revenue to local communities illustrated the extent to which VW’s influence stretches across Germany, and what a potential reduction of its industrial strength could mean.

“Our factory locations are the drivers of whole regions,” Cavallo said. The loss of local business taxes as a result of dieselgate had had a detrimental effect on the everyday life of millions, she added. It had cut deeply into municipalities’ coffers, leading to street lighting being switched off in one locality, an explosion in the cost of burials in another, and one town “even having to discontinue its rat control services”.

As opposition parties in the Bundestag seized on the fallout last week, seeking to present it as a symptom of far deeper and more widespread problems in the German economy, Gitta Connemann, a leading member of the opposition CDU’s pro-business wing, stressed the potential knock-on effects for the entire economy.

“VW coughs, and Germany goes down with the flu,” she declared, calling on Olaf Scholz’s government to intervene.

“The car industry remains the most important sector in Germany and in this branch, VW is the alpha male. When the giant wobbles, then everything wobbles,” Carsten Brzeski, head economist at the Dutch global financial institution ING, told German media. He pointed out that Volkswagen was more important to Europe’s economic powerhouse “than all the foreign trade with Greece”.

Some blame the government for the company’s predicament, saying it has pushed a green agenda which has led to a slump in domestic car sales and a rise in energy prices, and that it has failed to deliver on promises to slashing bureaucracy, as well as removing an incentive to buy electric cars by abruptly halting a subsidy programme at the end of last year.

Internally, though, there is also much criticism: in particular of VW’s own failure, over years, to grasp the opportunities presented by electric cars or the hybrid market. Why has it, of all companies – unlike its Chinese rivals – been so late in producing an entry-level model, affordable for the masses, similar to its roaring success, the VW Beetle? This is just one of many “mistakes of management” witheringly listed by Cavallo, who suggests the company has long since lost its common touch. As one commentator said last week: “It is as if the ‘Volk’ has gone out of Volkswagen.”

Yet the reality is that in Europe 2.5m fewer cars are being produced now than five years ago. The market for electric cars slumped by 69% in August compared with a year earlier, believed to be as a result of waning consumer confidence, and every fifth electric vehicle sold in Europe is produced in China. An affordable entry-level VW electric car, which is in the pipeline and due to go on sale next year, is being produced not in Germany but on the Iberian peninsula.

“From a purely economic point of view, there are ever fewer arguments in favour of producing in Germany,” said Helena Wisbert from the Centre for Automotive Research in Duisburg.

Back on the floor of Hall 11 in Wolfsburg on Wednesday, a representative of VW’s hitherto prestigious apprenticeship programme – long the envy of many other companies, and countries – expressed her own concern over the lack of Zukunftssicherheit (“future security” or sense of responsibility towards the younger generation). She accused the company of misleading new recruits over the prospect of cuts to VW’s guaranteed annual 1,000 training places.

“I don’t recognise this company any more,” Gianna Leo of GJAV, an organisation representing youth training schemes, told the hall. “This is no longer the same VW where I started my working life.” Her words were met with cheers and a standing ovation from workers, and a renewed wave of boos and whistles in the direction of the executives.