Volkswagen: more strikes against cuts. Scholz: 'Wrong to close factories'

The Volkswagen crisis helped fragilise the Traffic Light coalition, which then imploded due to the impossibility of finding shared solutions to the more general crisis of the German economy. The dispute weighs heavily in the election campaign, ahead of the early vote in February.

Scholz certainly does not want to go down in history as the chancellor who witnessed the first Volkswagen plant closure in Germany in its 87-year history. Nobody would want that.

The capacity utilisation of the group's German factory network has fallen to less than 60 per cent over the past two decades, Bernstein analysts wrote in a November note, with spare capacity estimated at 800,000 units.

Volkswagen is suffering, like other car manufacturers, from declining sales in Europe, a mature market destined at best to grow very moderately, due to structural factors such as demographics and the changing consumption patterns of younger generations. The type of engine, electric or petrol, has little to do with it.

Above all, Volkswagen is paying for the wrong choices in China, which has turned heavily to electric (and that's where the engine comes in) and where the German group is being outclassed by its competitors, aided by more than $230 billion in state subsidies over the past 15 years. In 2024, electric models will account for 50 per cent of the domestic market with the prospect of rising to 75 per cent in the next few years.

In the words of an industry analyst, for Volkswagen, as for Gm, Ford or Toyota, 'the party in China is over'. The lag is not only manifested in the engine, but also and above all in on-board electronics, advanced assistance and infotainment systems. In 2023, Volkswagen's market share in the world's largest car market was 14.5 per cent, up from 19.3 per cent in 2020. In the first 11 months of 2024, it stood at 11%.

In November, sales of new-fuel vehicles (Nev: electric, hybrid and fuel cell) in China jumped 51% year-on-year and 6% year-on-year in October, according to the China Passenger Car Association. A third of these vehicles are Byd-branded.

Back in 2018, Chinese manufacturers had the capacity to produce around one million Nevs, while foreign companies were stuck at 150,000, according to AutoForecast Solutions. This year, Chinese groups have risen to a production capacity of almost 10 million electric vehicles, while foreign competitors are at just 1.9 million.

However, Volkswagen has no plans to change its dividend policy and is sticking to a payout ratio (the share of after-tax profits paid out to shareholders) of at least 30%.

Instead, IG Metall demands that shareholders and management do their part by waiving part of their bonuses and reducing profit redistribution.

The Porsche-Piech family, which controls Porsche SE and through it holds 31.9% of Volkswagen, looks at the affair with concern. Volkswagen's dividend is one of the most important sources of liquidity for the holding company and amounted to EUR 1.4 billion last year. Porsche SE is burdened with a debt of EUR 5.1 billion.