Volkswagen Faces Significant Profit Decline Amidst Structural Changes

The Volkswagen Group has reported a substantial decline in profits, revealing a nearly 31% drop in earnings over the past year. This downturn is attributed to increasing competition in the Asian market and high costs associated with restructuring efforts. The company posted a profit of EUR12.4 billion, a sharp decrease from the previous year's figures.

Notably, the performance from China, once a strong contributor to Volkswagen's profits, has significantly decreased. Additionally, the company incurred heavy expenses related to the closure of its Audi plant in Brussels. In operational terms, Volkswagen's earnings before interest and taxes (EBIT) fell by more than 15%, totaling EUR19.1 billion, resulting in a profit margin of 5.9%, down from 7% in the previous year.

In contrast, the company's revenue saw a slight increase of nearly 1% to EUR324.7 billion. However, shareholders will experience a reduction in dividends, which are set to be cut by 30% to EUR6.36 per preferred share listed on the DAX index, a more significant reduction than initially anticipated.

In line with the company's cost-cutting measures, the executive board has agreed to a significant reduction in salaries. The board members will forgo 11% of their pay in 2025 and 2026, as confirmed by a representative from the supervisory board. This decision follows a proposal from the management that was approved in a recent supervisory board meeting. Future salary increases are planned to occur gradually after the initial two-year period.

During last year's labor negotiations, the head of the works council, Daniela Cavallo, emphasized the need for the management to participate in the company's austerity measures. As a result, a 5% reduction in base salaries was agreed upon, although this constituted only a portion of the total compensation. Interestingly, Volkswagen CEO Oliver Blume's overall earnings increased to EUR10.35 million, up from EUR9.7 million the previous year, despite the salary cut.

In total, the nine members of the executive board earned approximately EUR40 million last year. Meanwhile, unionized workers will still receive a bonus payment, with a total payout of EUR4,799.50, which is slightly higher than the previous year's bonus. Approximately 120,000 employees will benefit from this payment, which reflects the profitability of the Volkswagen brand over the past two years.

As part of a broader restructuring agreement reached in December, Volkswagen has committed to reducing its workforce by 35,000 positions in Germany by 2030, which accounts for roughly 25% of the total number of jobs. This adjustment in workforce is aimed at lowering labor costs, alongside cuts to various bonuses and allowances, while suspending wage increases. In exchange, the company has pledged to avoid plant closures and layoffs due to economic necessity.

Looking ahead, Volkswagen intends to significantly cut back on expenditures following a period of heavy investment. From 2025 to 2029, the company plans to allocate approximately EUR165 billion towards new facilities, technology, and software, a decrease from the previously planned EUR180 billion for the preceding five-year period. Moreover, investments in traditional combustion engine technology will be gradually reduced, while the company aims to maintain flexibility in offering multiple powertrain options to customers.

Despite the overall downturn in the automotive sector, Volkswagen is optimistic about achieving growth in revenue this year, projecting an increase of up to 5% compared to the previous year. CEO Oliver Blume anticipates that the operational profit margin will remain stable, falling between 5.5% and 6.5%. The company foresees challenges stemming from geopolitical tensions, rising trade barriers, and political instability affecting its operations.