In my latest column, I reported on the VW crisis. In the meantime, it has developed into a genuine car-making crisis – at least, that is the impression given by the increasingly hysterical headlines in the German press. Unfortunately, they are not exaggerated at all.
The end is nigh?
In fact, the VW crisis seems to have developed to such an extent that, in addition to the closure of two to three entire factories, state aid is also being discussed. At the latest, since these “subsidies” have been discussed, alarm bells have been ringing for me. Should the general public once again have to take the rap for management (and political) mistakes?
Huge cash reserves
To clarify: the VW Group is not slipping into the red for now. Profit has merely plummeted, mainly because of Germany.
In June 2024, VW still had a cash balance of around 75 billion euros. To put this into perspective, the plant Tesla built in Brandenburg costs around 5.8 billion euros and, when running at full capacity, can produce 500,000 electric vehicles annually.
As recently as 2018, VW stated that by 2030, there should be at least one electric version of each of the 300 models in the group’s range. The company was willing to spend 34 billion euros on this.
In a discussion round, the then CEO Herbert Diess was so convinced of himself and VW that he announced that they would create an electric car that “would be able to do everything Tesla can do, only better and at half the cost”.
As recently as 2019, VW stated that it wanted to offer electric vehicles for less than €20,000 based on the “small” MEB platform developed by SEAT (VW’s electric architecture), according to Automobil Produktion. The platform was intended to replace the so-called New Small Family with the VW Up, Škoda Citigo and Seat Mii. What has become of the new A-segment electric car? So far, nothing.
In addition, the MEB+ platform was planned to increase the range and efficiency of VW Group models from 2025. According to a report in Manager Magazin, this further development seems to have been canceled. Instead, the focus is on the more expensive but more modern PPE platform.
How much does it cost to develop a new car?
The information varies, but the development costs and the construction of the new production of a (combustion) car devour around 2 billion euros. According to Diess, more than 30 billion euros have been invested in electric mobility in the discussion round 2018 (see above).
Management failure
Looking at all these figures, one thing seems quite clear: the VW Group is in trouble because it failed to bring cheaper and more in-demand models to market in time. The money for another rapid transformation would be there – but the word “rapid” no longer fits the reality in Germany. They have become too complacent and lethargic. Now, the paralysis triggered by the shock waves of the crashing economy is added to this.
It seems hardly surprising that a rapid transformation cannot work with Oliver Blume as CEO. Blume comes from the luxury vehicle segment (Porsche), where money has not played a role so far. But here, too, the situation is currently changing dramatically. With the Chinese startups, it became clear how much brands like Audi, Porsche, and VW ripped off the consumer. It was not an issue as long as the economy was doing well. But when money gets tight in the household, it becomes an issue. And that is exactly what has happened.
The government has failed and is about to make another huge mistake
It has become an annoying certainty that the Habeck ministry is not working proactively. The ministry only seems to function when implementing energy ideology and change come hell or high water. The cost-benefit remains doubtful.
All the other things that don’t work are being tried to be covered up with money. This worked well as long as the economy was flourishing. Now it is believed that the “debt brake” is to blame for the decline of the German economy. Which, when looked at soberly, is nonsense, because the erratic economic policy of the traffic lights has effectively stifled any post-coronavirus recovery.
A new scrappage scheme to fix it?
Solutions already controversial in Merkel’s time are being proposed to save what can still be saved. In all seriousness, a scrapping premium of up to 6,000 euros is being proposed for combustion engines to accelerate the sale of electric vehicles.
Apart from the ecological implications, this bonus is the stupidest thing that can be done in such a situation. Planned economy considerations are what got Germany into this precarious situation in the first place.
But the Ministry of Finance does not seem to want to go along with this.
Which brings us to the conclusion: how will it continue? At the moment, it doesn’t look good. Like dominoes, almost weekly, more supplier companies fall over due to the poor automotive economy. Even the mechanical engineering industry is in the ropes. Since up to 5-6 other jobs depend on each job, this means an accelerating downward trend.
Jonas Eckhardt (restructuring expert at the management consultancy Falkensteg), in an interview with BILD on September 24: “After just eight months in 2024, we will have reached the insolvency figures for the entire previous year, 2023. I expect around 60 major insolvencies in the automotive sector this year. Last year, there were a total of 34 insolvencies.”
The latest outrage from Prof. Marcel Fratzscher, the chief economist of the coalition government and head of the NGO DIW in Berlin, also fits into this negative context: According to him, the energy-intensive industries should simply be allowed to go…
Probably, the man has never seen dominoes falling…
