VW row flags Germany’s creaking corporate model
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.
By Pierre Briancon
BERLIN, Sept 5 (Reuters Breakingviews) -A company whose chief financial officer says it only has “one, maybe two” years to turn around its core brand must have done something wrong. That’s why the speech of Volkswagen’s VOWG_p.DE Arno Antlitz to 25,000 of the carmaker’s workers on Wednesday almost sounded like a confession. It came just a few days after the German group said it was considering shutting plants in its home country, breaking a long-standing taboo. It’s also a crisis of VW’s and Germany’s corporate governance model.
There is no doubt that Volkswagen is in bad shape. The stock is down by about a third since current CEO Oliver Blume took over in September, 2022, with total returns down nearly 30%, compared with positive returns for its main European rivals. Its operating margin within the core business was just 6.3% in the first half of the year, next to 10% for Stellantis STLAM.MI. According to Antlitz it is facing a demand shortfall of about 500,000 vehicles - the equivalent of the production of two plants.
The group has been hit by a perfect storm produced by high energy prices, the slowdown of the Chinese market, high interest rates and uncertainties about Western consumers’ appetite for electric vehicles - illustrated by the 37% fall of EV registrations last month in Germany itself. Antlitz is now hinting at closing plants and redundancies for German employees, who make up 43% of the company’s workforce. Volkswagen unions, on the other hand, point out that the group was slow in investing in cheap electric cars, and that its over-reliance on China was bound to backfire.
Those same unions and labour representatives hold half the seats on its supervisory board, and so can block any move to shut factories. The state of lower Saxony has a 20% voting stake as well. Previous CEO Herbert Diess was fired in 2022, having clashed with unions. Blume is unlikely to get all that he wants.
Other German groups, in other sectors, are also facing big changes as they grapple with tough competition. Engineering group Thyssenkrupp TKAG.DE is struggling to sell its steel arm and is embroiled in a row with the unit’s management over its restructuring. Indebted pharma giant Bayer BAYGn.DE is planning job cuts. Chemical group BASF BASFn.DE is trying to save 1 billon euros at its Ludwigshafen headquarter. This comes in a context where industrial production has been slowly declining in Germany since 2017 - two years before Covid-19 struck.
The German tradition of corporate co-management, with representatives of labour and capital given equal seats on supervisory boards, helped Germany grow and its citizens benefit during the globalisation decades. Now those trends are in reverse. The country’s corporates must find a way to adapt while preventing a governance model that relies on co-operation and consensus from becoming acrimonious. But a failure to adjust quickly enough, could leave them weaker and less able to compete.
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CONTEXT NEWS
Volkswagen has "one, maybe two" years to turn its main car brand around, the German carmaker’s Chief Financial Officer Arno Antlitz said on Sept. 4, as the auto giant weighs its first-ever plant closures in Germany and its powerful unions threaten a fight.
Antlitz said Europe's car market had shrunk after the pandemic and the company was facing a shortfall in demand of about 500,000 cars, equivalent to about two plants.
"The market is just not there," he told a meeting of workers at Volkswagen's Wolfsburg headquarters. He added that he did not expect sales to recover, and that the core VW brand had "one, maybe two" years to cut spending and adjust output.
Volkswagen's total returns since CEO Oliver Blume took over https://reut.rs/3TiyW0u
Editing by Neil Unmack and Streisand Neto
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