Strategy VW Plans to Build Fewer Cars—and Enter New Markets

Related Vendor

SIMTOS (Seoul International Machine Tool Show)

Volkswagen is saying goodbye to its old volume planning; one million fewer cars are to be produced worldwide. The Group also wants to open up markets in the global South.

The Volkswagen Group intends to significantly reduce its production capacities further in view of the difficult market environment. "We are currently looking at up to one million additional capacities in order to reflect the global market situation," Group CEO Oliver Blume told Manager Magazin. "This will take us from a total of over twelve million invested capacities to a sustainable nine million vehicles per year."

This affects the company's locations worldwide. In China, as in Europe—here mainly concerning the core VW passenger car brand and the Audi subsidiary—VW has reduced its production capacity by one million vehicles each. "Overcapacities are not sustainable for our company in the long term," said Blume. "And in today's market and competitive situation, the volume planning of the past is unrealistic."

"There are smarter methods than closing a plant"

According to Blume, a decision on whether plants need to be closed has not yet been made. "There are smarter methods than immediately closing a plant. In Osnabrück, for example, we will end the production of VW vehicles next year—we decided that in 2024." In that case, VW is in talks with defense companies about possibly locating production there and taking over employees.

But nothing is certain yet. "We have a clear plan on how to reduce our capacities in a socially acceptable way," Blume said about the ongoing job cuts. Currently, Volkswagen is cutting a total of 50,000 jobs at the core brand and especially at the subsidiaries Audi and Porsche in Germany to reduce costs. According to Blume, the current profit level is not enough to support the investments in models and technology permanently.

A further reduction in jobs cannot be ruled out by the manager. "It is our duty to examine everything carefully," he said. "We are looking at all cost positions. That is a fundamental part of our responsibility for this company." In 2019, the plants of the VW Group were designed for twelve million vehicles per year. "But since Corona, the average has been nine million vehicles in completely changed markets," said Blume. In the USA, VW is considering whether Audi can also use the new factory for the electric brand Scout, but according to Blume, a decision is still pending.

Opening Markets in the South

After Volkswagen had focused on China for years, the automaker now wants to tap into markets in the global south with models developed in China. Volkswagen wants to benefit from economies of scale and the "unique cost positions" in China, said China CEO Ralf Brandstätter in Beijing. VW is exploring markets in Southeast Asia, Mexico, North Africa, and South America, he said. Europe or North America are not an option, it was further stated.

According to Brandstätter, the technical basis and knowledge from years of the "in China for China" strategy could help. These competencies support the group in these markets "where we have to compete with Chinese OEMs anyway," he said. Volkswagen wants to tap into markets where the group is not yet particularly strong, like Southeast Asia, and those markets favorable to Chinese electric and hybrid cars and Chinese regulations. All models are being considered, but not all will ultimately be exported, Brandstätter said. Each market will be examined individually.

"We Possess China-Speed"

The strategy expansion comes in the year of the automaker's largest product offensive in China, with more than 20 electric and hybrid models and new and revised vehicles with combustion engines. "We now possess China-speed and competitive cost structures," emphasized Brandstätter.

Volkswagen had long emphasized developing and producing models only in China for the Chinese market. However, the market remains challenging, said Brandstätter. "We do not rely on higher prices in the future." Therefore, a recovery in margins could only be achieved through cost efficiency. In the world's second-largest economy, automakers are struggling with fierce competition, an oversupply paired with weak demand, and the resulting price pressure. More and more Chinese manufacturers are therefore pushing into promising markets like Europe with their electric cars.

Last year, six million cars were exported from China, which, together with the 24 million cars sold in China, totals around 30 million vehicles manufactured in the People's Republic, calculated Brandstätter. (thg)