VW Boss Sounds The Alarm: The Situation Is Critical For The German Automaker

These could be the company's biggest cuts ever.

CEO's Memo Says Margins Won't Fund New Models

Group CEO Oliver Blume sent a memo to company employees. Reuters saw the memo and reports that Blume called Volkswagen's current situation "more than critical." He said that the company's 4% margins are "by no means sufficient to generate enough funds in the long term for new technologies, new products and our sites."

The CEO said that Volkswagen's overhead cost to build its vehicles was more than 30% higher than competing brands. That's a massive gulf between companies, and Blume made it clear that the company had to cut these costs to remain competitive.

At Volkswagen's annual meeting in June, Blume said that the company was planning to cut 50,000 jobs by 2030 and launch a host of new vehicles. Its 2025 operating profit of $10.9 billion was evidently not sufficient.

Now, Reuters reports there could be another 50,000 jobs cut worldwide. Though Blume said that's not a specific target, rather it's "an indicator of the scale of action required" and meant to relate to its competition.

In July, Volkswagen said that it planned to gradually cut the group lineup in half. It will focus on the segments that are most profitable and plans to cut capacity from 10 million to nine million vehicles per year.

More Cuts Could Mean Shuttered Factories

Capacity cuts mean job cuts and factory closures. Many of the previously announced cuts will come as part of an agreement with VW's works council that sees early retirements and buyouts as well as workers agreeing to use their own pay increases to support the company's changes.

In the memo, Blume said that four of its German plants won't be competitive until into the 2030s, but that he has not yet made the decision to close any of them. Many of VW's German plants have made improvements in their cost structures, but Blume said it isn't enough.

Volkswagen has struggled since the Dieselgate emissions scandal of 2015. It paid tens of billions in fines and repair costs on vehicles that did not comply with emissions standards. As a result, Volkswagen also went all-in on electric vehicles, spending even more billions. It's an investment that hasn't panned out yet, with VW still shy of selling 1 million per year across its multiple brands.