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Volkswagen China responds to a 20% reduction in capital in the next three years: it does not mean layoffs

2024-06-25 Update From: AutoBeta NAV: AutoBeta > News >


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Volkswagen Group has set up a performance program called "KI 10" for all its companies, which aims to reduce fixed and personnel costs by 20 per cent within three years, according to media reports such as Economic Observer, Labor Daily and China Business News.

According to reports, the document, released by Berry, chairman and CEO of Volkswagen China, shows that in the next two years, Volkswagen Group will promote its transformation in the world and China by investing in new technologies to ensure its competitiveness in the future. Therefore, profitability is an integral part of continued success. China, as the most important market of Volkswagen Group, plays a vital role in this plan. At the same time, China's fierce market environment has put additional pressure on the company's financial performance, and Volkswagen urgently needs to focus on a more efficient organization, taking advantage of cross-entity and departmental synergies to achieve the goal of reducing indirect personnel costs by 20%. It is understood that Volkswagen China, Audi China, CARIAD and other pure German subsidiaries have received the document, FAW-Volkswagen and other joint ventures are not involved.

In response to the rumor that Volkswagen has set up a KI10' performance program to reduce staff costs by 20 per cent in the next three years, Volkswagen China said that 20 per cent refers to indirect labor costs and is not equal to layoffs. "KI10" (KEY initiative), the Efficiency efficiency plan (Efficiency Program) put forward by headquarters, is based on 2023 and will achieve a 20 per cent increase in efficiency in the next three years.

Despite Volkswagen's repeated emphasis on the importance of speed, time remains one of the biggest threats to a multinational auto giant that relies heavily on the Chinese market. According to the financial report, Volkswagen Group's sales in the first quarter of 2024 were 75.5 billion euros, down 1% from the same period last year; operating profit was 4.6 billion euros, down 20% from the same period last year; and operating profit margin was 6.1%, down 1.4 percentage points from the previous year. During the reporting period, the cash flow of the Volkswagen division was-3 billion euros, compared with 2.2 billion euros in the same period last year. Volkswagen said the decline in revenue and profits was mainly due to falling global sales and rising costs. Data show that Volkswagen Group sold 2.1 million vehicles worldwide in the first quarter, down 2 per cent from a year earlier.

In each market segment, Volkswagen Group's sales in Asia-Pacific and South America increased by 2% and 19% respectively, while those in Europe and North America fell by 5% and 10% respectively. The Chinese market remains Volkswagen's largest single market in the world, with sales of 690000 vehicles in the first quarter, up 8 per cent from a year earlier. However, the profit of Volkswagen Group's joint ventures in China was only 429 million euros in the first quarter, down 31 per cent from a year earlier.

Compared with brands facing the mass market, high-end brands such as Audi and Porsche have always been the profit cows of Volkswagen Group, but in recent years, with the intensification of competition in China's auto market, Audi and Porsche's market share in China is gradually shrinking. Take Audi as an example

Audi (including Audi, Bentley and Lamborghini) sold 402000 vehicles worldwide in the first quarter, down 4.7 per cent from a year earlier, of which the Audi brand was 396900, down 4.5 per cent from a year earlier. In the Chinese market, Audi sold 155300 vehicles in the first quarter, up 14% from a year earlier. For Audi brand, its main sales sources in the domestic market are A6L, Q5L and A4L, which mainly cover the price range of 30-500000 yuan, but with the rapid development of new energy vehicles in China, Audi brand models with no advantages in product power and performance-to-price ratio are facing a huge sales crisis. To this end, Audi brand in order to ensure sales, choose to "break the bone" sales, "small profits and quick turnover" put it back to the sales peak of 730000 vehicles in 2023, but also made Audi "increase income without profit", a serious decline in profitability.

As for Porsche, its sales fell for two consecutive years after peaking at 96000 in 2021, including a 15 per cent year-on-year decline in 2023 and a 24 per cent year-on-year decline in the first quarter of 2024 to 16000 vehicles, far more than in other markets. Not long ago, Porsche dealers in China launched a mass protest and boycott because Porsche China still chose to press the warehouse in order to complete the sales task, which led to the intensification of conflicts between the two sides.

In the face of declining performance, layoffs have become the most direct and effective response strategy for Volkswagen Group. Earlier, the Volkswagen Group announced a plan to provide a total of 900 million euros to executives who choose to terminate their contracts early, and qualified senior German executives can also choose to receive an additional 50,000 euros severance bonus in addition to the normal severance payment, but eligible employees are required to receive the bonus by the end of May.

The increasingly fierce price of new energy vehicles in China has seriously deconstructed the price system of fuel vehicles in the past and intensified the competition. With regard to the upheaval in the general environment, Volkswagen China CEO Baird stressed in April that "speed is very important" in order to maintain a leading position in the Chinese market. Because in the Chinese market, the models are replaced every three years, the structure is upgraded every two years, and the vehicles are updated with OTA every month, Volkswagen China must also keep up with the pace.

In the view of Volkswagen Group, the current localized R & D and localized supply is the continuation of the group's "in China, for China" strategy. From 2026, at least eight pure electric models developed for the Chinese market will be on the market. By 2030, the group will offer at least 30 pure electric models in the Chinese market. In addition, Volkswagen is also promoting the hybrid transformation of the fuel vehicle lineup, as well as the intelligence of fuel vehicles.

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