Summary in Plain Language
On September 3, the supervisory board of Volkswagen unanimously approved the most stringent rescue plan in the company's history: It was admitted that the current automotive production capacity in Europe exceeds actual market demand by 500,000 units. The four core factories in Germany will not be able to secure stable orders in the next 3-5 years. As a result, 100,000 jobs will be cut, half of the current models will be discontinued, and the bloated management structure will be significantly streamlined. Overall costs need to be reduced, and efficiency improved, as otherwise, Volkswagen will not be able to survive in the new competitive landscape of electric vehicles.
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Detailed Analysis
1. The Current Situation of European Factories
Volkswagen is not hiding the truth this time; it has officially acknowledged that production capacity in Europe exceeds demand by 500,000 units. This means that for nearly two months each year, production lines in European factories are idle, with no buyers for the vehicles produced. Even the four flagship factories in Germany, which used to produce high-end cars and always had full orders, are now unable to secure stable production quotas for 2031-2034. Volkswagen is considering converting these factories to produce other products or even for other brands. The cost of closing factories in Germany is so high that this option is only a last resort, but it clearly indicates that the European production system needs a major overhaul.
2. The 100,000 Job Cuts Are Not Rumors
The plan includes management positions, which were previously considered safe from layoffs. It’s noteworthy that the supervisory board includes employee representatives and union representatives. Just 10 years ago, the union would have organized a strike if even 10,000 job cuts were proposed. The unanimous approval of the plan shows that even the unions recognize the reality: if costs are not reduced now, everyone will lose their jobs in a few years if the company goes bankrupt.
How bloated was Volkswagen’s previous management structure? A new car model modification required signatures from over a dozen departments and took half a year to implement. By cutting management positions, Volkswagen is eliminating inefficient middle and upper-level employees and redundant approval processes, thereby improving decision-making speed—similar to the efficiency of Chinese automakers, which can update car models in just a few weeks.
3. Discontinuing Half of the Models
Volkswagen has finally realized that having too many models is counterproductive. The idea of discontinuing half of the models by 2035 does not mean a reduction in the product line; rather, it’s a realization based on past mistakes. Volkswagen once had dozens of models under its brands (Volkswagen, Audi, Skoda), many of which sold fewer than 10,000 units per year. The research and development costs, as well as the cost of manufacturing molds, were excessively high, resulting in losses per vehicle sold. By focusing on fewer models, Volkswagen can concentrate resources on the most popular ones, such as electric vehicles, and reduce costs by more than 20%. This is the concept of “scale effects”—producing 100,000 units of one model generates more profit than producing 10,000 units of ten different models.
4. The Fundamental Reason for the Tough Measures
Volkswagen is being forced into this situation by Chinese automakers. The advantages accumulated during the era of fuel-powered cars have been completely eroded in the electric vehicle market. Chinese-made electric vehicles are cheaper and offer better features than those produced in Europe. Volkswagen’s share of the European electric vehicle market has been significantly reduced by companies like Tesla and BYD. If costs are not reduced and decision-making speed is not improved, Volkswagen’s European market share could be further lost to Chinese competitors within five years, leading to a similar fate to Nokia.
5. The Impact on Consumers
Volkswagen’s restructuring will also affect the entire automotive industry. Not only Volkswagen but also traditional fuel-powered giants like Toyota and General Motors will follow similar measures. The wave of layoffs and product line reductions is just beginning. For Chinese consumers, this means that Volkswagen will no longer be able to sell premium “import-only” or slightly modified models at high prices. To regain market share, Volkswagen will likely shift more R&D resources to China, accelerating the localization of its products. As a result, the prices of joint-venture cars will decrease, and in a few years, consumers will be able to buy high-specification Volkswagen electric vehicles for the same price as current fuel-powered cars.
In summary, Volkswagen’s drastic measures are a response to the challenges posed by the electric vehicle era. These changes will have a significant impact on the automotive industry and on consumers worldwide.