The good times are over for VW boss Herbert Diess, but he also takes advantage of the bad ones. He uses the poor quarterly result in a targeted manner to increase the pressure on the VW workforce.
What a wonderful summer it was for Herbert Diess: The VW CEO surfed like a wave and collected confirmations. Confirmations for his line, which should demonstrate to everyone that, unlike his predecessors and the bosses of other old car companies, he no longer applies the brakes when moving from the combustion to the electric era. No, he takes the lead in the movement. That he presents himself as a kind of twin of Tesla foreman Elon Musk, whom he even invited to a management meeting for a chat. That, unlike in the industry for a long time, he did not appear as an anti-economist, but rather embraced Fridays for Futures with publicity, called for a more consistent climate policy and took part in a bicycle demonstration – all of which was blown out with the help of a specialized PR agency on Twitter.
This activism paid off: VW seemed to be on the way from a diesel fraud company to an eco-pioneer, the stock exchange celebrated the company as a kind of second Tesla and all of this also seemed to give the company’s new electric cars the necessary boost. In addition, after astonishingly good figures from the first half of the year, Diess was able to make a big promise for investors: In the electric age, the company will not feel more pressure on profits, as had been believed in the past – no, it would make its returns from earlier times, in some cases meager Even increase times significantly.
Apparently, it looked like a company like VW can be a climate saver, job and profit machine at the same time. It almost seemed to be forgotten that Europe’s largest industrial group is also lugging around a lot of problems from the past, that the factories are underutilized and clumsy, the organization is bloated and the model and brand policy is disordered and unmanageable.
90 percent old combustion world
Now that Herbert Diess presented the business figures for the three months from June to September on Thursday morning, all of this is back on the table. How vulnerable the business model of the Group’s mass brands (VW, Skoda, Seat, but also VW Commercial Vehicles) is. How costs skyrocket when factories are underutilized. How much has been neglected with all the construction work on electric cars and digital development, the dismantling and conversion work in the old combustion engine business. How crisis-prone VW is as a whole – because it still contains more than 90 percent of the old world and less than ten percent of Tesla (even if the breakdown is generously based on the Group’s sales shares of pure combustion and electrified vehicles).
In detail: In its bread and butter business with vehicles for the mass market, the company slipped into the red in the quarter. The VW brand alone drove an operating loss of 184 million euros. The operating cash flow from the auto business also rushed down by almost two thirds. That in itself is questionable, since Diess’ whole strategy is based on using the money that is supposed to flow from the “old” combustion engine business to pay for the immense investments that will be made in the new era of electric and digitally dominated cars flow.
Overall, quarterly sales fell by 4.1 percent to 56.9 billion euros compared to the same quarter of the previous year and the operating result by 12.1 percent to 2.8 billion euros. It looks dramatic when you look at sales and production: The number of cars sold fell by 30 percent, and production by as much as 35.1 percent.
Much of this can be expected and explained, so the figures did not surprise the analysts. The stock market did not react in shock, but it was disillusioned: The price of Volkswagen preferred shares fell by more than three percent.
The chip crisis remains the main factor behind the bad numbers. Because there is a lack of semiconductors for vehicle controls, the VW Group – like other manufacturers – is currently unable to manufacture many of the cars it could sell. Expensive production capacities lie idle. VW puts those chips that are still available in cars that promise high profits, i.e. luxury cars or particularly well-equipped vehicles. Therefore, the decline in profits is nowhere near as severe as the decline in production. Noble Porsche SUVs and large Audi sedans have once again cushioned the group. At the same time, however, the development also reveals how much VW is dependent on the low-margin mass business and how little the group has made progress in making more profit here, too, despite years-old announcements. And despite everything, the chip crisis even affected the profit of the noble subsidiary Audi.
Dispute with the works council
All of this is the background to the violent disputes that have broken out at VW in recent weeks. On the part of Diess, thoughts leaked out that the CEO could cut 30,000 jobs at the core brand VW. Works council chief Daniela Cavallo publicly and violently attacked Diess because he was planning to skip a works meeting in the coming week – he would rather fly to a roadshow in front of investors in the USA. In the end, however, the CEO had to back down and promised to step in front of the workforce.
So it is already clear that the beautiful, sunny times for the VW driver are over for the time being. The disputes are likely to intensify in the next few weeks. And he also has to fear that investors will trust his Elon Musk disguise less in the future and will perceive him again more than the one he once came to Wolfsburg as: as the manager of a traditional car manufacturer who is grappling with the new times.
Herbert Diess wouldn’t be Herbert Diess if he didn’t try to take advantage of all of this. He used the presentation of the bad numbers to increase the pressure on his managers and employees – especially those at the main plant in Wolfsburg. This was often left out in the past by savings and efficiency efforts and is now at the center of the effects of the chip crisis. Because this is where VW builds the mass-produced Golf. Due to the relocation of the valuable chips to yield generators, a particularly large amount of capacity in Wolfsburg is idle.
The result proves “the need for further productivity improvements and fixed costs reductions,” said Diess. You can now see the “structural weaknesses in terms of resilience at the VW brand”, added relentlessly CFO Arno Antlitz. “More needs to be done here.” Again and again, Diess held the new Tesla factory in Grünheide, Brandenburg, in front of the Wolfsburg plant. “Wolfsburg must be competitive with the Tesla plant,” said Diess. According to VW calculations, they currently need almost twice as long for a car in Wolfsburg as is planned at Tesla. “That is the challenge Wolfsburg has to respond to,” said Diess.
“The direct number of employees has to go down,” he continued. They will work on it in the next few weeks. Of course, he added a few thin but nice words about his works council boss and the works council’s insight. But even there it seemed that the VW boss was preparing for a battle. The friendly eco-pioneer Diess is likely to have a break in the next few weeks.
This article first appeared on capital.de