Volkswagen Strategy

VW's Electric, China Acid Test

ARCHIV - Ein Arbeiter reinigt das Firmenschild eines Volkswagen Autohauses in der Nähe von Schanghai, aufgenommen am 13.10.2005. Der Volkswagenkonzern rechnet in den nächsten drei bis fünf Jahren mit einem kräftigen Wachstum des chinesischen Automarktes von sechs bis acht Prozent jährlich. Foto: Gero Breloer/dpa (zu dpa «Volkswagen erwartet sechs bis acht Prozent Wachstum in China» vom 31.01.2013) +++(c) dpa - Bildfunk+++
Can VW fix its troubles with a new strategy?
  • Why it matters

    Why it matters

    Volkswagen hopes growth in sales in China andnew technology like electric cars, digitization and self-driving cars will help it recover profits and recover from the emissions scandal.

  • Facts

    Facts

    • On Sunday the U.S. law firm Hausfeld set up a website to gather the names of those who want to take part in legal action against Volkswagen in Europe.
    • Volkswagen begins a round of collective bargaining for 120,000 Volkswagen employees from its six factories in western Germany and Volkswagen Financial Services on Tuesday.
    • The company is focusing on digitization and electro-mobility at the Hanover Trade Fair which begins today.
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  • Audio

    Audio

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Volkswagen chief executive Matthias Müller knows how to put on a brave face. Just days after the German car maker posted its largest ever losses, it promised innovation, growth and optimism at the Beijing auto show Sunday.

And as its European and American divisions still reel from the fall out of the emissions scandal, VW’s China boss, Jochem Heizmann, announced plans to increase sales in that country by six percent in 2016.

With his announcement, Mr. Heizmann underscored that China is by far the most important market for VW. More than a third of all cars produced by the Volkswagen Group, including its subsidiaries and other brands, are sold to China. For the flagship Volkswagen brand, it’s 50 percent. Based on the company’s experience in China, a new blueprint for future success is being created that will transform the company.

Like other multinational giants before it, Volkswagen must now process a massive internal crisis while simultaneously keeping its sights on the future.

Last week, Volkswagen took a step toward resolving its legal troubles in the United States over the emission cheating scandal when it reached an agreement in principle with U.S. authorities that would allow for buybacks and repairs of affected vehicles.

But it’s clear its troubles are not yet over.

On Sunday, the U.S. law firm Hausfeld launched a website to sign up European customers, investors and other affected parties to a possible civil lawsuit in Germany.

There is a fear that the Chinese government will ban cars with traditional engines from its big cities in the future due to their impact on the environment and that’s driving many auto manufacturers to pursue alternative options for the market.

In this climate, it is understandable that Volkswagen also looks to other parts of the world for growth.

China could serve as a model for how Volkswagen can approach its future. The Volkswagen Group’s board of directors has long given significant autonomy to its regional operations, with the requirement that Volkswagen build its cars in these regions with local joint venture partners.

By the end of 2017, Volkswagen says it will develop a budget car option as an effective entry-level model. Additionally, Volkswagen wants to offer 15 electric and hybrid options. There is a fear that the Chinese government will ban cars with traditional engines from its big cities in the future due to their impact on the environment and that’s driving many auto manufacturers to pursue alternative options for the market.

More indications of the group’s realignment are expected when Mr. Müller presents its balance sheet as early as Thursday. Then a “Strategy 2025” document is to follow in June, Mr. Müller wrote to employees last week.

At the Hanover Trade Fair this week, where Volkswagen still has as impressive a stand as ever, the automaker’s head of research, Werner Schreiber, is preparing presentations on digitization and electromobility, including an exhibit showing a typical production process, where humans and robots work together in a room.

VW is supporting the government’s goal to put about a million electric vehicles on Germany’s roads by the end of the decade and Mr. Schreiber says the company will bring 20 other electric car models on the market by 2020. The proportion of plug-in vehicles and pure battery-powered cars will make up about 3 percent of global sales in 2018. That would be between 300,000 to ten million vehicles sold.

It’s already clear that digitalization, alternative engine systems and self-driving cars will play a significant role. But there are other question about the future that must be answered. What will happen to the factories the group owns that currently produce traditional auto engines? How will the company’s job descriptions change?

These topics are expected to be discussed on Tuesday as well, when a round of collective bargaining for 120,000 Volkswagen employees from its six factories in western Germany and Volkswagen Financial Services begins, according to Handelsblatt information. The employees are demanding a wage increase of five percent; the company has not yet submitted its offer. Internally, however, both sides seem clear that this new VW era will likely have fewer employees.

 

China's Car Market-01

 

On Friday in Wolfsburg, VW’s supervisory board delivered statements after issuing its fiscal 2015 results. Lower Saxony premiere Stephen Weil called the results of the supervisory board meeting “progress indeed.” The emissions scandal had opened up a conversation that was on “everyone’s minds: boardroom remuneration,” Mr. Weil said. Bernd Osterloh, head of the Volkswagen works council described the remuneration deal as a “difficult compromise.” One supervisory board member told Handelsblatt that some people are not very happy.

Under the new scheme, board members will receive almost 40 percent less than last year in bonus pay with further millions frozen in virtual shares, pending performance of the share price. The frozen virtual shares would be paid only if the share price were to increase by 25 percent by 2018.

Handelsblatt has learned that the company’s supervisory board examined whether to completely do away with bonuses, but auditors and the law firm Gleiss Lutz had come to the conclusion that this was not legally possible. According to stock corporation law, this could only happen if VW is at risk of going bankrupt. As this is not likely, bonuses can only be surrendered voluntarily.

The supervisory board now wants to revise the compensation system. The plan is reportedly to increase fixed pay, given the reduction in bonus pay.

 

Andreas Dörnfelder is a reporter at Handelsblatt, Martin Murphy covers the automotive, defense and steel industries, Christian Schnell is an automotive industry reporter and editor. To contact the authors: a.doernfelder@vhb.de,  schnell@handelsblatt.com,  murphy@handelsblatt.com

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