Actually, this review and outlook for Europe’s largest industrial group could have been very gratifying. The 2021 numbers at Volkswagen are outstanding, despite the corona epidemic, despite the lack of semiconductors. The change from sheet metal bender to producer of moving smartphones – that’s what VW calls the cars of the day after tomorrow – is at least halfway going, they have just found a location for their robot car factory. The American market is no longer just a loss-maker for the VW brand. The US competitor Ford buys several hundred thousand kits for electric cars. And finally, the constant and major conflict between the employee representatives and the company management around Herbert Diess is currently not an issue: Yes, the works council even gave up its meeting rooms with a view of the Mittelland Canal for the VW annual press conference this Tuesday. In times of crisis, labor leader Daniela Cavallo and her people tend not to let managers into the finely defined territory.
But now the crisis is real: war.
Perhaps that’s why the usual power struggles at the company’s headquarters in Wolfsburg are taking a back seat.
On the eve of the annual meeting, those board members who once served in the Bundeswehr had already talked about their experiences in the bunker and during test alerts. And of course the effects of the war in Eastern Europe on the VW business.
The VW factory in Kaluga, 170 kilometers southwest of Moscow, is now closed, just as the European Union has also banned dealers from exporting cars to Russia that cost more than 50,000 euros. They are still hoping at Volkswagen for production and trade to restart in Russia, but in a few weeks or months they will continue to pay wages. But, says Diess, it might be “required” to leave Russia “completely”. It would be manageable: Russia accounts for only half a percent of the balance sheet.
The business with Ukraine is almost more relevant, not because of the cars, but because of the parts. The country is popular because the people are well trained, but the hourly wages are only a tenth of those in Germany: all kinds of labour-intensive work is therefore produced in the Ukraine, such as cable harnesses, which sometimes take ten hours to tinker with before they are exactly match the respective car model. At least 30 to 40 percent of the usual delivery quantities are still managed by the ten supplier factories relevant to VW – despite the war. In order to intercept the other 60 to 70 percent, they have formed a “task force” in Wolfsburg: A few hundred meters away, in the football stadium of the factory team, which is – how appropriately – lit up at night in the Ukrainian national colors, there are a hundred people from VW together with 50 people from the most important suppliers, all with great freedom of decision: Here, an order form has to be filled out quickly for the authorities, there it needs twenty trucks for a transport, that’s the kind of thing it’s all about. And ultimately, it’s all about relocating parts production to other locations, such as North Africa. “We are preparing for a total failure,” says Herbert Diess.
What a contrast to the brilliant year 2021. With sales of 250 billion euros, the bottom line profit more than doubled to 15.4 billion euros – because they saved at VW and because they built their 8.9 million cars and Trucks sold more expensively than before, especially at the subsidiaries.
The most profitable of them, Porsche, is scheduled to go public by the end of the year; the partial sale should bring money for the complex new technologies that have to be managed, all the battery factories and robot functions. The plan with the stock exchange is still in place, asserted VW CFO Arno Antlitz on Tuesday. But of course there are circumstances, it has been heard, in which the IPO – which became known two days before the Russian invasion – is unlikely to go ahead. What Diess says applies: Normally, one would be optimistic about the future. “But the war in Ukraine called our outlook into question.”
The VW boss says that many imponderables have not yet been fully understood
Although they have not yet found any comprehensible figures for the war and its consequences. Whether raw material prices or currency fluctuations, there are so many dependencies and imponderables that one has not yet “fully understood”, says Diess.
The VW boss also sees the dependencies as a solution to conflicts and wars, i.e. this network of supply and trade relationships that is an expression of globalization: Perhaps a more trade-friendly Russia with its own competitive industry would have wanted to avoid a war? In any case, he believes that the “change through trade” paradigm is still valid, says the VW boss, who looks at Asia with a similar logic: he thinks an invasion of Taiwan by China is unlikely, precisely because China is also working intensively with Taiwan, for example in semiconductors, and because China is so interested in economic success. “This leads us to believe that such a move is not something that China would seriously consider.”
At Volkswagen they also make it clear where they are at the moment: the annual press conference of the Volkswagen Group in Wolfsburg is not a political circle. It’s primarily about trade – and not about the transition to democracy and civil rights in the Western style, as human rights activists are repeatedly demanding, for example in China and Russia. Diess emphasizes that if you were to only do business in democracies, you would only reach seven to nine percent of the world’s population, depending on the calculation. That is not a business basis for a global car manufacturer.