Problems in the largest German car manufacturer:
Edit
Just noticed this:
The plant closures are part of VW’s plan to shed $4 billion plus in costs. VW like other European auto makers face increased competition, especially from China, Decline in China sales and an economic downturn in Europe. And the workers expect pay raises? LOL Good Luck!
Can’t get blood from a stone.
German industrial production peaked at the beginning of 2017, eight years ago.
DB2
https://marginalrevolution.com/marginalrevolution/2024/11/germany-chart-of-the-day.html
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The problem is VW, these days, produces overpriced, low quality, junk. VW is second only to Ford, in having the highest warranty claims expense in the world.
In true McKinsey fashion, their solution is to take more away from their employees.
Steve
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Here in Portugal the Communist political election platform wants higher wages and lower prices. it’s possible but who will pay for it?
The Captain
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I have always had VW and, later, Audi cars. My current Q5 will probably be the last Audi/VW I ever buy.
I believe it is more of a case of cutting the number employees than paychecks. If VW cannot sell their product because of low quality in which the employees had a hand in making—what do the employees expect? Continued pay raise I guess. Not the say that management is blameless.
In the macro sense, reducing headcount is the same as cutting pay. Only difference is, instead of everyone taking a 10% cut, a portion of the employees take a 100% cut. Several years ago, the word got out that VW had contracted, again, with McKinsey. The union immediately squawked, as McKinsey’s go-to recommendation is always headcount reduction. There are plenty of redundant operations at VAG that could be cut: the halo brands, Bentley, Bugatti, Lamborghini, Ducati, the redundant mass market brands: Skoda and SEAT. But nope. Management goes after the German workers in the VW plants instead. Remember what Marchionne said of Bugatti? “the biggest waste of capital I have ever seen”. But they keep pouring money into it. VAG does not report the results of most of the halo brands publicly. My default takeaway from that omission is they are hiding red ink from their vanity projects.
Stellantis is in the same boat: loaded with redundant brands. Peugeot, Opel, Citroen all sell into the same mass market space. Then they bought FCA, and added Fiat, Lancia, Alfa Romeo, and Maserati. They created “DS” as an “upmarket” brand, to charge higher prices for Peugeots. Their warranty claims are not as high as VW and Ford, yet, but their products are not paragons of quality either. The Stellantis Board fired CEO Tavares Sunday, presumably because their GP is falling back to it’s historical 5-6% normal, vs GP double that that Tavares had delivered since the plague.
Steve
Chinese companies offer cars with similar quality to their global rivals and at lower cost. Analysts at the bank UBS calculate that cars made by BYD cost 30% less to assemble than similar cars made by Western companies. Some of the biggest savings for Chinese companies are on batteries. China controls practically the entire supply chain for making electric car batteries.
Even Mercedes has there problems there:
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A simple chart that demonstrates it oh-so-clearly:
And the article:
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It seems European production has remained constant at 18-19 million vehicles per year while global production has increased by about 10-15% to 90 million.
Of course, between 2008 and 2018 EU GDP went from $16.3 trillion to $16.0 trillion. Then one has to adjust for inflation… 
DB2
It would seem high labor costs and now high energy costs put Europe production at a disadvantage. Energy costs are not likely to fall any time soon (unless the Ukraine problem gets resolved smoothly). If labor is inflexible, how can the industry survive?
Tariffs to block imports to force buyers to accept domestic products at higher prices seems the most likely solution. Will it happen? Will voters object?
Anecdotal evidence, good for little I know, but I stopped in to the local VW dealer yesterday while out on chores. I want to see the new Buzz, the archetypical VW van reminiscent of the hippie van of the 60’s, but all electric.
The sales guy says “Don’t have any, hard to get them. If I had a half dozen they’d all be gone too. I have one coming in next week, but it’s pre-sold, but I’ll call you when it arrives so you can look at it.”
Hard to tell anything from the first days of a model’s arrival, of course, but this one might have legs for the beleaguered company.
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A friend of mine is friends with a salesman at the VW dealer in Toledo, so he had a chance to drive one a few days ago. Buckle up. They sticker for $70,000.
Even the AMC Pacer sold well, it’s first year.
Steve
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