Shulou(Shulou.com)12/24 Report--

Cut administrative wage costs by 20%

Author | Wang Lei Chumen

In the throes of transformation, the century-old factory can no longer hold up.

Thomas Sch ä fer, the Volkswagen passenger car brand, warned at a staff meeting that the Volkswagen brand is facing various financial challenges, according to a leaked memo, Reuters reported.

In order to deal with competitors such as Tesla, the next step is to improve efficiency, reduce product costs and simplify customer service. The specific measure is to cut costs by 10 billion euros (about 77 billion yuan) and administrative staff costs by 1/5.

However, Volkswagen does not think that they are laying off staff, but "early retirement".

Volkswagen will let some employees sign retirement or early retirement agreements, while no longer hiring replacements, in order to achieve disguised layoffs.

Shortening the product cycle and improving the rate of return on sales. "High cost and low productivity lead to the lack of competitiveness of Volkswagen-branded cars."

That was the warning issued by Volkswagen passenger car brand CEO Thomas at a staff meeting last Monday.

According to the earnings report, Thomas is not lying. In the first half of this year, the profit margin of Volkswagen's passenger car business was only 3.8%, down 1.8 percentage points from the same period last year.

Just in the third quarter, Volkswagen's sales revenue was 78.845 billion euros, up 11.6% from a year earlier, and car deliveries were 2.3 million, up 7.0% from a year earlier. But the return on sales in the third quarter was just 6.2 per cent, well below the long-term target of "more than 10 per cent".

If there is no drastic cost reduction, there will not be enough competitiveness, so we have to adopt the method of "reducing cost and increasing efficiency" to deal with the current problems.

What does that mean? The answer is obvious-layoffs, after all, layoffs are always the most direct and efficient way to cut costs.

According to the internal memo, Thomas Schaefer told employees that in the future we will need to operate with fewer people in many areas of Volkswagen.

"but that doesn't mean fewer people do more work, but to get rid of old habits and say no to repetition and inefficiency."

Gunnar Kilian, head of human resources at Volkswagen, said the company will adopt a socially responsible attitude in the future, using partial and early retirement as much as possible to reduce the number of employees.

However, Gunnar Kilian repeatedly stressed that the company's goal is to reduce wage costs by 20%, not the number of employees by 20%, and revealed that negotiations between the company's leadership and the staff committee are now in the "final stage."

As early as June this year, Volkswagen brand officials announced a plan called ACCELERATE FORWARD to reduce costs and increase efficiency. The plan is to cut Volkswagen's costs by nearly 11 billion.

Under the plan, the Volkswagen brand aims to increase the return on sales to 6.5% to guarantee investment in future technology and jobs, and plans to increase revenue by about 10 billion euros in 2026.

A series of measures to achieve the above goals include streamlining and accelerating administrative processes, improving development and production efficiency, streamlining the line-up of models, and further improving product quality.

At that time, Volkswagen said it would carry out reforms in a number of ways, which paved the way for Volkswagen's disguised layoffs.

In addition, the memo also provides other cost-cutting measures, such as reducing the product cycle from 50 months to 36 months, reducing the overall production time, and canceling the new R & D base in Wolfsburg, which is planned to invest 800 million euros.

This cancelled R & D base is the new R & D center for the core and module design of the SSP platform.

As we all know, SSP is a key core platform in Volkswagen's future plans. This platform is a mechatronics platform architecture that covers all Volkswagen brands and all levels of models. SSP is an important node for Volkswagen to complete its electrification transformation.

The problem is that the R & D base of the SSP platform is planned to be cancelled, and how to replace Volkswagen's pure electric models in the future.

Some answers can be found in China. Volkswagen will turn the newly formed new energy vehicle joint venture, Volkswagen Anhui, into a local production base for the SSP platform, including the new R & D center under construction.

02. Increasing income does not increase profits Volkswagen's last large-scale layoffs, when its predecessor CEO Deiss was in office, announced 30,000 layoffs worldwide in order to help Volkswagen increase revenue and reduce expenditure, including 23000 people in Volkswagen headquarters in Germany, which saved Volkswagen 3.7 billion euros.

This time Volkswagen wants to save 10 billion euros, which means it must be adjusted drastically.

Volkswagen's official explanation is that the company's core business "does not make enough profits to independently fund the transformation and future of electric vehicles".

The main business of Volkswagen Group did not make enough money. When you can't make money, you have to spend less.

In the third quarter of this year, Volkswagen production was 2.173 million, down 2.8 per cent from a year earlier, and delivery was 2.344 million, up 7.4 per cent from a year earlier.

Revenue in the third quarter was 78.845 billion euros ($84.3 billion), up 11.6% from a year earlier. Operating profit was 4.894 billion euros, an increase of 14.9% over the same period last year.

However, hedging in the third quarter also resulted in a non-cash loss of 2.5 billion euros, which could not be offset by the end of the year.

Although revenue and net profit are both positive, Volkswagen's profit margin fell 1.8% to 3.8% on the premise of rising sales. Volkswagen passenger car brand CEO Shi Wentao is not satisfied with this. Toyota, by contrast, has a profit margin of 11.8% for passenger cars.

Increasing income without increasing profits has become the biggest problem. Thomas Sefer explained, "our management costs are too high, the factory efficiency is not high enough, and the cost is significantly higher than that of our competitors."

In addition, China, as the largest single market in the world, also brings a lot of pressure to Volkswagen.

Volkswagen's profits in the first three quarters of last year were 824 million euros, 578 million euros and 1.15 billion euros, respectively. This year, it is only 625 million, 527 million and 727 million euros, respectively. Compared with 2022, domestic profits in the first three quarters of this year have declined to varying degrees.

On the other hand, Volkswagen believes that after the current surge in the global electricity market, demand has begun to weaken.

According to the European Automotive News, sales of pure electric vehicles in Europe surged 47% in the first three quarters of this year compared with the same period last year, but the growth rate of electric vehicles slowed significantly in September.

Tesla, Volkswagen, Mercedes-Benz and other leading companies have issued pessimistic forecasts that high interest rates and depressed demand in the market have reduced consumers' desire for electric cars. According to Volkswagen, its current orders for electric cars are only half what they were in the same period last year.

JATO Dynamics, a well-known automobile data analysis company, said that if there are no cheaper electric cars on the market for consumers to choose from, demand will remain low and the growth rate of electric vehicles will slow.

At the same time, the public with big families and businesses also have a lot of places to spend money. For example, the ill-fated software division CARIAD has burned up 5 billion euros, or about 39.12 billion yuan, in the past few years.

For both subjective and objective reasons, Volkswagen must reduce costs and increase efficiency, but even if some employees are allowed to retire early, it is difficult to achieve the ultimate goal of saving 10 billion euros.

03. In China, the so-called "Wolf Castle" is not bright in the east and bright in the west, and Volkswagen is in reverse.

Although there are layoffs abroad, Volkswagen is not lenient in its investment at home. To put it simply, the province, the flower.

As early as October last year, CARIAD, a software company owned by Volkswagen Group, reached a cooperation with Horizon, investing about 2.4 billion euros to set up a joint venture and holding. The joint venture plans to produce L2 + and L2 driver + intelligent driving assistance products in 2025 and 2026.

A year later, on November 20, a joint venture between Volkswagen's software company CARIAD and Horizon was officially established. The massive layoffs at CARIAD did not affect the new company.

Volkswagen has made even more moves in China this year, first announcing in July that it had invested US $700 million in Xiaopeng and held a 4.99% stake in Xiaopeng, in order to speed up the intelligent transformation and reduce losses on smart cockpit development.

The deal has just been completed today, and Volkswagen Group has successfully won an observer seat on Xiaopeng's board of directors.

The cooperation between Volkswagen and Xiaopeng can be said to have opened a new era of joint venture. For the two B-class pure electric models jointly developed by Xiaopeng and Volkswagen, officials said that "the feasibility study of the project has achieved positive results and has been completed."

In November, CARIAD China, a software company owned by Volkswagen, announced a partnership with domestic smartphone maker vivo to expand interconnection innovation between smartphones and smart cars.

In early January next year, Volkswagen will also operate a modern R & D center in Hefei, China. It is also the first largest R & D center outside Germany.

Volkswagen has invested 1 billion euros in the center, which will create 3000 jobs. The R & D center is located in Volkswagen's Anhui electric car factory, which took only 18 months to build.

Volkswagen's former CEO Deiss said they had a similar plan in Wolfsburg, Germany, but his successor cancelled it. The reason for this is also simple: the European car market is shrinking, while sales of electric cars in China will continue to grow.

Compared with its hometown business, Volkswagen Group seems determined to take a chance in the domestic market. After all, in the second half of new energy, it is most important not to be thrown out of the car, so it is not impossible to build a "wolf castle" in China.

This article is from the official account of Wechat: Chaodian Lab (ID:SuperEV-Lab), author: Wang Lei Chumen

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