Volkswagen Struggles: What’s Up with VW?
Volkswagen announced plans to close two factories in Germany in September 2024 amid slow sales across its family of brands. Shuttering the two plants, the first time the company has ever shut down a production facility symbolizes Volkswagen’s issues and the European car market as a whole. Low demand, the massive costs of converting to electric vehicles, and the rise of cheaper Chinese brands have VW feeling the pressure.
VW 2024 Sales Shrink 1.4%
Just a day after management announced a 300 million Euro pay cut, VW announced brand deliveries fell 1.4% in 2024, including an 8% decline in sales in China. The year-over-year decline would have been worse without a double-digit boost in North American sales, where the post-COVID recovery has easily outpaced that in Europe and Asia.
Dieselgate: VW’s Monumental Mistake
However, 2024 is just a snapshot of VW’s plethora of issues dating back to the 2014 emissions scandal. Regulators found that VW used software that could detect when its diesel engines were being tested for emissions levels, cheating the tests in Europe and the US. The scandal involved more than 482,000 cars tested in the US, though VW would later admit to using the same device on more than 11 million cars worldwide, including 8 million in Europe alone.
The device covered up nitrogen oxide pollutants up to 40 times above the US limit.
Recalls cost VW billions, handing the company its first quarterly loss in 15 years in 2015. The company would eventually be fined approximately $37,500 per car, or roughly $18 billion.
Read more: Dealer vs. Mechanic: Who Should Work on Your Car?
Volkswagen in Crisis
Over the next eight years, VW gradually recovered market share, consumer trust with quality vehicles, and a degree of nostalgia among older consumers. However, the brand faces considerable structural challenges that it has failed to address.
VW’s Labor Costs Are Too High
Volkswagen CEO Oliver Blume says German labor costs are astronomically high, up to twice as high as those at four other European manufacturing facilities. Blume is implementing a strict cost-cutting initiative to lower salaries at every level of the company, though it’s unclear if he is taking a pay cut. Management denied the automotive labor union’s demand for a 7% pay increase and is rumored to cut pay by as much as 10%.
The labor costs exacerbate another problem: VW is making too many cars.
Car Demand Continues to Fall
VW cut its 2024 sales outlook in September 2024, citing faltering demand. Overproduction, shrinking demand, and the added expense of transitioning to electric vehicles have all hurt VW’s bottom line. Volkswagen doesn’t expect an uptick in European demand any time soon, saying the sector is “stagnating and will not recover in the foreseeable future.”
The Bright Spot
While few and far between, there are bright spots in Volkswagen’s world. Some of its brands, including Skoda, have enjoyed marginal sales and market share improvements, although partially at the expense of VW-branded models. It also confirmed a $5.8 billion partnership with US EV automaker Rivian, a joint venture designed to pool resources and take on the likes of China’s BYD and Tesla. The agreement primarily focuses on software collaboration based on Rivian’s existing software stack.
Volkswagen’s Long Road Ahead
There’s no doubt Volkswagen has plenty of work to do, but VW enthusiasts can take solace in the company’s history of weathering tough economic conditions and missteps. As one of northern Michigan’s most trusted VW repair garages, we’re confident we’ll be wrenching on Volkswagens for years to come.