Volkswagen has ‘a year, maybe two to turn around’, financial chief warns

Volkswagen says it has “a year, maybe two” to adapt to a slump in European car sales, as it seeks to justify proposals to close factories in Germany for the first time in its history.

Separately, the Swedish automaker Volvo said it had ditched a target to sell only electric cars by 2030, opting instead to continue selling some petrol vehicles alongside battery models.

European carmakers are under pressure as they try to fund the switch from petrol and diesel to battery models. That ambition has come up against inconsistent demand, as well as increasing competition from China.

Volkswagen told workers during a meeting at its Wolfsburg headquarters on Wednesday that it expected to sell 500,000 fewer vehicles than before the Covid pandemic, “the equivalent of around two plants”, and predicted sales would not return to levels seen in 2019.

Oliver Blume, Volkswagen Group’s chief executive, said he felt “emotional” about the decision to close the factories to save billions of euros in costs.

“The automotive industry has changed massively in the volume segment in just a few years. Together, we will implement appropriate measures to become more profitable. We are leading VW back to where the brand belongs – that is the responsibility of all of us,” he said.

Volkswagen disclosed the plans to shut two German factories – one making cars and one components – to its works council on Monday, prompting fury from staff representatives and politicians. Workers protested against the decision as they gathered to hear from management in Wolfsburg.

The closure plans present a significant problem for the German chancellor, Olaf Scholz, whose governing coalition is under severe pressure after losing an election in the eastern state of Thuringia to Alternative für Deutschland. It was the first time a state election had been won by a far-right party since the Nazi period.

Volkswagen was second only to Japan’s Toyota in 2023 vehicle sales. More than any other company, VW is emblematic of Germany’s mighty automotive industry, which has been one of the forces making the country Europe’s industrial heart. It employs 300,000 people in Germany out of a global workforce of 650,000.

However, Volkswagen and other European rivals were slow to embrace electric cars, which has put them at a disadvantage as rivals from China target Europe to sell their cheaper models.

Arno Antlitz, Volkswagen Group’s chief financial officer, said the carmaker had “a year, maybe two years, to turn things around”.

The company’s works council chief, Daniela Cavallo, said Volkswagen’s management had “massively damaged trust”.

The union IG Metall did not rule out strikes and said it saw no reason to reduce wage demands in planned pay negotiations. “Management has broken a taboo in a major way, and workers are prepared to be there when we call on them,” said Cavallo, vowing to prevent plant closures.

Volvo said on Wednesday it would aim for more than 90% of its global sales to be “electrified” by 2030, a definition that includes fully electric cars as well as plug-in hybrids that combine a smaller battery with a polluting petrol engine. It said this would mean higher carbon emissions for each car: a planned drop of 75% in emissions, compared with 2018, would instead become 65%.

“We are resolute in our belief that our future is electric,” said Jim Rowan, the chief executive of Volvo Cars. “An electric car provides a superior driving experience and increases possibilities for using advanced technologies that improve the overall customer experience.

“However, it is clear that the transition to electrification will not be linear, and customers and markets are moving at different speeds of adoption. We are pragmatic and flexible, while retaining an industry-leading position on electrification and sustainability.”

Volkswagen said Europe’s car sales would not return to the 16m sold across the market in 2019 – before the pandemic disturbed global supply chains, and semiconductor computer chip shortages, in particular, slowed car production.

“The market in Europe has recovered since then but will not return to its former level,” Antlitz said. “We expect around 14m vehicles to be sold per year in the future, if at all. And that has nothing to do with our products or poor sales performance. The market is simply no longer there.”

Antlitz spoke of financial problems at the Volkswagen brand, in particular. “We have been spending more money at the brand than we earn for some time now. That doesn’t go well in the long term. If we carry on like this, we won’t succeed in the transformation.”