Cost-Cutting Plans at the Corporate Group

Domestic Auto Suppliers Fear for Their VW Business

Volkswagen has embarked on a strict cost-cutting program.(Bild: AP/Michael Sohn)

Following the Volkswagen Group’s latest plans to further cut costs, domestic auto suppliers are worried about losing orders. On Thursday, the auto giant announced it would eliminate up to 50 percent of its models and also significantly reduce the number of trim levels.

The German automotive industry is in crisis. Leading the way, the Volkswagen Group (VW, Audi, Seat, etc.) is searching for a sustainable solution. At Thursday’s supervisory board meeting, Group CEO Oliver Blume presented a “plan for the future.” Under this plan, for example, the model lineup is to be gradually reduced by up to 50 percent, and trim levels by as much as 75 percent. However, it remains completely unclear what will happen to the number of employees. Most recently, it was reported that up to 100,000 jobs are at risk and that four plants in Germany are to be closed.

Germany Is the Most Important Market for Our Auto Suppliers
In any case, the news from our neighboring country is not good for domestic suppliers. The German market is the most important sales market for our approximately 900 automotive suppliers. It is still unclear how the current cost-cutting plan will specifically affect Austrian companies. The question is, in fact, what will happen to production capacities and the plants. “For us, the question isn’t so much which cars are produced, but rather the actual number of vehicles manufactured,” emphasizes Clemens Zinkl of ARGE Automotive-Zulieferindustrie. There is still a great deal of uncertainty here.

The question is not which cars are built, but how many vehicles roll off the assembly line.

Clemens Zinkl, ARGE Automotive-Zulieferindustrie

Bild: Martin Dworschak

VW CEO Blume has announced in this regard that the company plans to build only nine million vehicles in the future (down from 10 million the previous year). Before the COVID-19 pandemic, that figure was 12 million. If this plan is carried out, it will naturally affect our companies as well. In any case, further job cuts loom. While the industry still employed around 82,000 people a few years ago, a good 5,000 jobs have recently been lost due to layoffs or bankruptcies. Zinkl could not say whether this is the end of the decline or if numbers will continue to fall. The current employment figures are currently being compiled and are therefore not yet available.

Volkswagen has embarked on a strict cost-cutting program.(Bild: AP/Michael Sohn)

The crucial question: where will production take place in the future?
In addition to production figures, the question of where Volkswagen will build its vehicles in the future is also of essential importance to our suppliers. If, for example, the four German VW plants currently on the chopping block are relocated to Asia, it will be “difficult,” says the automotive expert. At locations where Austria is competitive, the situation is different.

“Nothing More to Be Gained”
In any case, there’s nothing more to be gained from domestic suppliers, the expert emphasizes. They’ve done their part, which has at least kept industry revenue at just under 28 billion euros. Profit margins, however, have shrunk or even slipped into the red, as evidenced by several bankruptcies. “Everything is getting more expensive, and there’s nothing left,” says Zinkl.

Lack of Planning Certainty
In general, the industry expert criticizes the lack of a Europe-wide strategy. We must finally answer the question of what kinds of cars we manufacture in Europe. “Predictability would be enormously important,” Zinkl emphasizes.

In any case, Economy Minister Wolfgang Hattmannsdorfer is calling for improvements to the EU’s automotive pact: “Genuine technological openness, the approval of renewable fuels, and effective protection of European industry against dumping prices, government subsidies, and unfair distortions of competition from China.”