Volkswagen's Restructuring Negotiations Result in Union Victory, Yet Stock Remains Indifferent
Volkswagen's Restructuring Negotiations Result in Union Victory, Yet Stock Remains Indifferent
History shows that it was unlikely that Volkswagen's dramatic corporate restructuring plan would effectively dismantle its detrimental, politically influenced business structure, despite potential signs of a dire existential threat looming on the horizon, which might prompt such change.
Volkswagen aimed to shutter three German factories to tackle efficiency issues as Europe's leading automaker grappled with slumping domestic and Chinese markets, struggling electric vehicle sales, and underperforming VW brand profits.
Following negotiations that concluded just before the holiday break, union leaders congratulated themselves on what they referred to as a "Christmas miracle," indicating that there would be no immediate factory closures, layoffs, or wage reductions. In essence, the unions emerged victorious while Volkswagen's efforts to streamline its vast enterprise and shift its focus from laborers to shareholders faltered.
This outcome was not surprising to seasoned Volkswagen observers. In Germany, the strength of unions in corporate governance is particularly pronounced at Volkswagen, where they hold half the seats on the supervisory board and can exert significant influence over company policy, thanks to the support of politicians in its home state and shareholder Lower Saxony. This has long prevented investors from investing in Volkswagen, as it was seen as prioritizing employees over shareholders.
Volkswagen Share Prices
Volkswagen's recent stock performance implied that investors were optimistic about the outcome of the negotiations. In November, shares hit a yearly low of €82 – a 45% drop from the €151 high in April – but gradually picked up speed as negotiations intensified, eventually closing at €91.30 on Friday.
Volkswagen ultimately announced more than 35,000 job cuts and a reduction in production capacity by over 700,000 vehicles. Volkswagen agreed to maintain 10 German factories, ensure job security until 2030, and targeted €15 billion ($15.6 billion) in efficiency savings. Production of the Golf hatchback will shift to Mexico, while electric vehicle capacity will be reduced at its Zwickau plant and moved to Wolfsburg and Emden.
Initially, investor reactions were predominantly negative, requesting more specifics.
Investment firm Jefferies explained that the deal needed more details and lacked urgency to match the industry's pace of change.
“We need further clarity on how management plans to achieve €15 billion in annual cost reductions within VW Germany by mid-term, with €4 billion coming from the current agreement,” Jefferies noted in a report.
“The planned reduction in capacity by 734,000 units suggests a focus on compacting facilities instead of closures, which can cut costs but also maintain an overabundance of underutilized facilities,” Jefferies added.
Bernstein Research was equally skeptical, regarding the agreement as insufficient in meeting Volkswagen's goal of closing factories and reducing labor costs. The job cuts will primarily be accomplished through early retirement and attrition.
“Based on data from the VW Works Council, overall wage levels in 2026 are predicted to be between 4% and 7% lower than if no changes were made, whereas management aims to reduce these amounts by between 16% and 19%,” Bernstein warned in a report.
Lack of Clarity
“The market will likely demand more clarity regarding these claimed savings, considering past failures to improve costs and performance in Germany,” Bernstein concluded.
Frank Schwope, an automotive industry instructor at the University of Applied Sciences FHM Hannover, believed that the unions emerged triumphant.
“From the employees' perspective, the agreement appears to be a success, although we don't have all the information,” Schwope noted in an email.
Jefferies suggested that, at least, the agreement might have deterred further strikes in January.
- Despite Volkswagen's restructuring plan, the strong influence of unions in Lower Saxony, Germany, has historically prioritized employee concerns over shareholder interests, deterring investors.
- Frank Schwope, an automotive instructor, believed that the recent agreement between Volkswagen and unions was a success from the employees' perspective, but the full impact is yet to be seen.
- Jefferies, an investment firm, expressed concerns about Volkswagen's restructuring plan, stating that the deal lacked urgency and clarity to match the fast-paced industry changes.
- Bernstein Research was equally skeptical, suggesting that the agreement did not adequately address Volkswagen's goal of closing factories and reducing labor costs.
- In response to Volkswagen's job cuts and efficiency savings plan, Chinese market, Volkswagen's key market, is closely watching the developments to gauge its impact on the company's future profits.