Volkswagen Has ‘One, Maybe Two’ Years To Turn Itself Around

Good morning! It’s Wednesday, September 4, 2024, and this is The Morning Shift, your daily roundup of the top automotive headlines from around the world, in one place. Here are the important stories you need to know.

1st Gear: Volkswagen Could Soon Be In Deep Trouble

Volkswagen is in deep shit. Now, its finance chief is saying the German automaker has “one, maybe two” years left to turn itself around. All of this is happening as it weighs its first-ever German plant closure while its powerful unions threaten to fight. It’s a tough situation for sure. From Reuters:

Delayed for several minutes when he took to the stage as staff whistled and shouted “Auf Wiedersehen” – German for ‘goodbye’ – Arno Antlitz appealed to the joint responsibility of staff and management to cut spending if the brand is to survive the shift to electric cars.

To a packed hall of thousands of workers and more outside watching on a screen, Antlitz said Europe’s car market had shrunk after the pandemic and the company was facing a shortfall in demand of about 500,000 cars, equivalent to about two plants.

“The market is just not there,” he told the meeting at Volkswagen’s Wolfsburg headquarters. He added he did not expect sales to recover and that the core VW brand had “one, maybe two” years to cut spending and adjust output.

In response to the speech, Daniela Cavallo, works council chief, said VW management had “massively damaged trust” and said its threat to close plants was a “declaration of bankruptcy.” She also wants CEO Oliver Blume to explain why Volkswagen Group was prioritizing a 5-billion-euro software partnership with Rivian rather than protecting German jobs. It’s a fair question, I suppose.

The idea of factory closures at one of Germany’s most important companies is very worrying for Germany’s (and Europe’s) economy at large.

Labour Minister Hubertus Heil promised support, telling RTL/ntv that “Germany must remain a strong car country”. He did not give details but [Chancellor Olaf] Scholz’s cabinet on Wednesday agreed tax measures to boost demand for EVs, which has lagged expectations, a source familiar with the matter said. His Social Democrats may also lobby the government for support on energy prices.

Underscoring the tough backdrop, business sentiment in the German automotive industry slid further into negative territory in August, the Ifo economic institute said on Wednesday.

Volkswagen, whose brands also include Audi, SEAT and Skoda, said on Monday it was considering closing factories in Germany and ending a job guarantee at six of its plants in a drive to deepen a 10 billion euro ($11 billion) cost-cutting plan.

It is targeting a 6.5% profit margin at the VW brand by 2026, up from 2.3% in the first half of this year. The brand accounted for the majority of group car production last year.

You all should really head over to Reuters for the full rundown on how the unions are reacting to this news and what the fallout could be. It’s going to end up very messy.

2nd Gear: Volvo Gives Up On Near-Term EV-Only Goal

Volvo says it is abandoning its pie-in-the-sky goal to be EV-only by 2030. Instead, it will add in plug-in hybrid vehicles as well as some conventional hybrids as part of its lineup at the end of the decade.

It’s the latest in a string of major automakers reacting to slowing EV demand by introducing more hybrid models. To add insult to injury, Volvo is also bracing for the impact of European tariffs on electric vehicles made in China. From Reuters:

Volvo Cars said in a statement that by 2030 it now aims for between 90% and 100% of cars sold to be fully electric or plug-in hybrid models, while up to 10% would be so-called mild hybrid models if needed.

Its previous target, from 2021, was for all its cars to be fully electric by 2030.

Volvo Cars, which is majority-owned by China’s Geely Holding, said it had lowered the ambition due to changing market conditions and customer demands.

“We are resolute in our belief that our future is electric,” CEO Jim Rowan said. “However, it is clear that the transition to electrification will not be linear, and customers and markets are moving at different speeds of adoption”.

Right now, it’s sort of anyone’s guess as to where Volvo’s product mix will actually end up by 2030, but one thing I know for sure is the automaker has to get its act together. It’s in a pretty deep rough patch at the moment, so its next generation of vehicles needs to be good to win customers back.

3rd Gear: BYD Pauses Mexican Factory Until After Election

BYD will not announce any major plant investments in Mexico until at least the U.S. election on November 5, according to folks who spoke with Bloomberg. Basically, uncertain and shifting policies have forced global businesses to enter “wait-and-see” mode. From Bloomberg:

BYD was scouting three locations for a car production facility in Mexico but has stopped actively looking for now, several of the people said, asking not to be identified discussing information that’s private.

The postponement is largely because BYD would prefer to wait and see the outcome of the race between former President Donald Trump and Vice President Kamala Harris in early November, the people said. They added that BYD’s paused factory plans may still be revived or could change, and no final decision has been made.

All that being said, BYD disputes the report.

BYD said in a statement to Bloomberg that it “has not postponed a decision on a factory in Mexico.”

“We continue working to build a factory with the highest technological standards for the Mexican market, not for the United States market, nor for the export market,” the company said in a statement attributed to Executive Vice President Stella Li. “For BYD, the Mexican market is very relevant.”

One area that was under consideration was around the city of Guadalajara, one of the people said. That region has emerged over the past decade as a technology hub sometimes described as Mexico’s Silicon Valley. BYD sent a delegation to the area for a visit in March.

Li also visited Mexico City in February for the launch of the automaker’s Dolphin Mini model while senior management held court at a box sponsored by BYD at the Formula E Mexico City E-Prix in January.

Mexico could end up being extremely important to BYD’s overseas production. It’s also building or currently operating plants in Brazil, Hungary, Turkey and Thailand.

Like other big Chinese automakers, Shenzhen-based BYD is increasingly seeking to localize production to avoid punitive tariffs that governments around the world are starting to levy on imported electric cars and plug-in hybrid vehicles from Asia’s biggest economy.

While BYD has previously said any cars built in Mexico would be for local consumption, the prospect of exporting its affordable range of EVs to a huge auto market like the US would be tantalizing.

Mexico is seen as a strategically attractive landing point for foreign automakers given its proximity to America. It’s also part of a North American free trade agreement with the US and Canada.

The Biden administration is watching for any attempts by Chinese automakers to export cars built in Mexico to the U.S. It’s apparently considering ways to block them if they seek to circumvent tariffs that have been put in place.

4th Gear: Jeep Head Replaced After Nine Months

After just nine months on the job, Jeep chief Bill Peffer is being replaced by Bob Broderdorf in North America as the company attempts to reverse a five-year sales slide in the U.S.

Broderdorf previously served as senior vice president of Ram brand operations. Now, Peffer will become the lead of Stellantis’ North American dealer network, replacing Phil Langley, who is retiring after being at the automaker (in one iteration or another) for 40 years. From Automotive News:

“Today’s moves align with our focus on optimizing operations here in the region and preparing for our future,” Stellantis North America COO Carlos Zarlenga said in a Sept. 3 statement. “Bob’s diverse experiences in field sales, brand management, marketing strategy and product development will be critical as the Jeep brand launches its electrified portfolio over the next several years. And with his exceptional combination of retail automotive experience and leadership roles at both domestic and import OEMs, Bill will help us raise the bar as we work together with our dealer network to write the next chapter in our transformation.”

The changes come shortly after Stellantis CEO Carlos Tavares visited Detroit to address the company’s troubled North American operations. Stellantis posted a 21 percent drop in second-quarter U.S. sales — including a 19 percent decline for Jeep — while the rest of the market rose 1.7 percent.

Broderdorf started at Chrysler 20 years ago as a district sales manager. He has had a number of sales and marketing roles with the Ram, Dodge, Chrysler, Fiat, Alfa Romeo and Maserati brands. His appointment at Jeep is effective immediately, Stellantis said.

Peffer was in the Jeep role only since December, when he succeeded Jim Morrison. His new responsibilities, starting Oct. 1, involve optimizing dealership sales volumes, Stellantis said.

Stellantis isn’t doing too hot right now, and while I hesitate to call this rearranging deck chairs on the Titanic, it doesn’t feel like a great sign for the automaker.

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