Business has stalled in Volkswagen’s three key emerging markets, China, Russia and Brazil, which account for 43 percent of all vehicles sold in the group and a third of its profits.
Not long ago, double-digit growth in those markets enabled the world’s biggest carmaker, with 600,000 workers and sales of €203 billion, or $226 billion, to hide a number of weaknesses, including an over-dependence on China and outdated model lines.
With growth in China slowing, a high-ranking manager at VW told WirtschaftsWoche he now expected the carmaker to suffer a “thirsty streak for at least another year” in the Asian powerhouse.
Volkswagen has responded with a number of measures. After seeing sales in China slide from a 10-percent gain last year to nearly a 7-percent decline in the first half of 2015, the company confirmed to WirtschaftsWoche that it has throttled down production of several models.
Production of the Magotan, the company’s Chinese version of the Passat, dropped from 15,000 vehicles a month to just 5,600 in April, according to car industry expert Jochen Siebert from the JSC consultancy in Shanghai. Reductions in the “production of specific models will total 10 to 20 percent for the entire year,” he said.
“It shows that Volkswagen is a decade behind the competition.”
VW’s luxury brand Audi is also struggling in China. “More than 3,000 A3 models were produced in November, but only 1,200 vehicles left the assembly line from March to May,” Mr. Siebert told WirtschaftsWoche.
Audi dealers in the country have responded to collapsing demand by offering rebates of up to 30 percent. Some have also been forced to close because of the sharp drop in business.
Volkswagen confirmed that there is less work being done at its 20 Chinese factories overall, calling the cutback a “conscious normalizing of production” at plants previously running at full capacity. The company said the reduction in A3 production was linked to a planned change to a new model.
Russia is another troubled market. Since the beginning of 2015, sales have plummeted by 44 percent compared to the previous year, prompting the company to begin shipping some of the motors assembled there to other European markets. Previously, the manufacturer exported motors made in its Russian plants only to former Soviet republics.
At the same time, Volkswagen has been laying off Russian workers. “Contract workers haven’t been used since 2014,” said Dmitri Trudvoi, a unit representative and employee at the VW plant in Kaluga near Moscow. The company is offering severance packages worth six months’ pay – of up to €4,200 – to fulltime employees willing to leave voluntarily. Of its 3,500-plus workforce in Russia, 400 have accepted the offer to date.
Another 120 workers have left as trainees for German plants. “Ostensibly it’s a traineeship, but really it’s a way to move workers somewhere else,” said Mr. Trudvoi.
The picture looks much the same in Brazil, where the German auto giant is also laying off workers and ramping down production. The measures have sparked strikes at two factories so far. Sales in Brazil, VW’s second-most important market after China, have dropped by a third from 2013 to 2014 after the carmaker failed to react to the deteriorating local conditions.
“It shows that Volkswagen is a decade behind the competition,” Brazilian auto expert André Deliberato told WirtschaftsWoche.
VW chief executive Martin Winterkorn can’t solve problems in all three markets through short-term emergency measures, experts say. Instead, they point to fundamental and structural issues.
For Mr. Winterkorn, it’s little solace that Volkswagen managed to sell 4 percent more cars in Europe in the first half of the year. That, at least, was more than most experts had expected.
Video: Auto Shanghai 2015: highlights Volkswagen Group night .
This article originally appeared in weekly business magazine WirtschaftsWoche. To contact the author: email@example.com