“Earthquake” at Volkswagen – and a crisis in Germany? | Volkswagen (VW)

“Earthquake at Volkswagen” was the headline of the Wolfsburger Nachrichten, the newspaper serving the northern German city famous for its automobile industry.

News that the crisis-hit company was considering closing its German plants for the first time in its history, prematurely dissolving a 30-year labour protection agreement as part of an effort to save around €10bn (£8.4bn), had barely filtered through to workers exiting Gate 17 at Volkswagen’s main Wolfsburg plant on Monday, where a lone reporter was sent to capture reactions at the end of the shift.

But they were not surprised. “The mood has been down for a while,” said one. Another spoke of an “unusually high sickness rate” among workers, who were stressed by a sense of looming doom at the company—and by a mood of uncertainty, most recently manifested by the cancellation of shift work. “We knew for sure something was cooking,” said another.

Two days later, company executives and some 15,000 workers—10,000 of whom were packed into a large hall at the Wolfsburg plant, the rest, who could not get in, watched on screens outside—faced each other in a tense standoff.

The workers unleashed their collective anger, waving banners and chanting protest slogans including: “We are Volkswagen, you are not.” For about 20 minutes, according to witnesses (the media were excluded from the room), the din of cheers and whistles prevented the bosses from speaking. Instead, they remained behind a long table, their faces set and looking slightly embarrassed. They were dressed in open-necked white shirts and dark sweaters, their summer tans fading in the bright lights and cool air.

A worker puts the finishing touches on a Volkswagen Golf in Zwickau, eastern Germany. Photo: Jens Meyer/AP

“We are short of about 500,000 cars a year,” VW’s chief financial officer, Arno Antlitz, reportedly said in the room. That’s the equivalent of two factories, he said. “It’s not about our product or our underperformance. The market simply doesn’t exist anymore,” he said, giving the company “a year or two” to rectify the situation. Experts estimate that VW has about 20,000 more employees than it needs to.

Oliver Blume, the chief executive of the Volkswagen Group, would address his family at dinner like a father, telling employees in no uncertain terms that the company was living beyond its means – drawing an estimated €1.5 billion a year in cash flow for about 15 years – and that things had to change. Blume likened the situation to a “family box” that “is empty by the end of the month.”

He said that sometimes a kind relative would step in to pay for extras, such as a new TV, before pointing out bluntly that China had in fact been playing that role for years, with sales in the country funding the company.

At one point, Blume – a local young man who fully understands how much Volkswagen supports the economy, and thus the identity of Lower Saxony – seemed to take off his mask, show his emotions and talk about his desire to “protect the Volkswagen family.”

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In a sign of the fervor likely to shape the battle that will follow, Daniela Cavallo, head of the works council representing the company’s 120,000 employees in Germany, responded: “We are the Volkswagen family, and a family leaves no one behind.” She promised “fierce resistance” to the company’s austerity measures, saying: “We will not tolerate the liquidation of the company.” Strikes – a rare occurrence in the company’s history – cannot be ruled out.

What’s at stake for the 87-year-old company—founded under the Nazi government and driven by the dream of producing an economical “people’s car,” or “Volkswagen”—is not just Wolfsburg, Lower Saxony, or the six other locations across Germany, from Emden to Zwickau, where Volkswagen is firmly established. “The crisis at Volkswagen… is a crisis for Germany,” says Cavallo.

Volkswagen’s last major setback — the alleged diesel scandal of 2015 and 2016, when the manufacturer was found to have rigged emissions tests to make its vehicles appear more climate-friendly than they were — cost it an estimated €30 billion in compensation payments worldwide, as well as taking a huge toll on its reputation as a symbol of German technical prowess and reliability.

The loss of tax revenues to local communities at the time showed the extent of Volkswagen's influence across Germany, and what a potential decline in its industrial power could mean.

“Our plant locations are the engine of entire regions,” Cavallo said. The loss of local business taxes as a result of the diesel scandal has had a detrimental impact on the daily lives of millions of people, she said. It has hit municipal coffers hard, with street lights going out in one area, burial costs rising in another, and one town “even having to stop rat control services.”

As opposition parties in the Bundestag seized on last week’s fallout, seeking to present it as a symptom of deeper, more widespread problems in the German economy, Gitta Könemann, a leading member of the pro-business wing of the opposition Christian Democratic Union, stressed the potential impact on the entire economy.

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“Volkswagen is coughing, Germany is catching the flu,” she declared, calling on Olaf Scholz's government to intervene.

“The automotive industry remains the most important sector in Germany, and in this branch, Volkswagen is the dominant male. When the giant wobbles, everything wobbles,” Carsten Brzeski, chief economist at Dutch financial institution ING, told German media, noting that Volkswagen was more important to the European economic power “than all foreign trade with Greece.”

Volkswagen Beetle cars on the assembly line in Wolfsburg in 1954. Photo: Reithausen/AP

Some blame the government for the company's predicament, saying it has pushed a green agenda that has led to lower domestic car sales and higher energy prices, failed to deliver on promises to cut bureaucracy and removed the incentive to buy electric cars by abruptly ending a subsidy program late last year.

But internally, there is also much criticism: not least of Volkswagen’s own failure, over the years, to exploit the opportunities presented by the electric car or hybrid market. Why was VW, of all companies – unlike its Chinese rivals – so slow to produce a prototype, accessible to the general public, on the scale of its hugely successful Volkswagen Beetle? This is just one of the many “management mistakes” Cavallo lists in harrowing fashion, suggesting that the company has long since lost its corporate touch. As one commentator put it last week: “It’s as if VW has disappeared.”

But the truth is that Europe is now producing 2.5 million fewer cars than it did five years ago. The electric car market fell 69% in August compared with the previous year, thought to be due to a decline in consumer confidence. And every fifth electric car sold in Europe is made in China. Volkswagen’s low-cost electric car, due to go on sale next year, is not made in Germany but in the Iberian peninsula.

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

In Hall 11 in Wolfsburg on Wednesday, a representative of Volkswagen’s prestigious apprenticeship programme – long the envy of many other companies and countries – expressed concern about the company’s lack of “future security” or sense of responsibility towards the younger generation. She accused the company of misleading new recruits about the possibility of cutting back on the 1,000 guaranteed annual apprenticeship places that Volkswagen offers.

“I don’t recognize this company anymore,” Gianna Liu of GGAV, an organization that represents youth training programs, told the crowd. “This is not the same Volkswagen where I started my career.” Her words were met with cheers and applause from the workers, and a new wave of boos and whistles directed at executives.

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