Volkswagen’s Personnel Costs Near 50 Billion Euros

A deep dive into the financial statements of Germany’s largest automaker reveals significant challenges: costs are exorbitant, and returns are weak. Experts believe the company’s profit targets are at risk.

At times, Oliver Blume, the CEO of Volkswagen Group, must feel like he’s playing an endless game of “Whack-a-Mole.” As soon as one problem is resolved, another immediately pops up.

There have been and continue to be plenty of challenges for the CEO: the transition to electric vehicles is slower than expected, raw material markets remain volatile, and last year, Volkswagen’s core brand in Wolfsburg lost its decades-long market leadership in China to local competitor BYD. This shift represents a major blow to Volkswagen’s strategic ambitions in one of the world’s most crucial automotive markets.

“The roof is on fire,” said Thomas Schäfer, Blume’s brand chief, last summer in front of the assembled management team. Schäfer’s dramatic statement underscores the urgency and severity of the challenges facing the company. The metaphorical fire isn’t just about market competition but also internal and external pressures that could shape the future of the company.

In addition to these issues, there are internal problems such as bottlenecks in the company’s electric motor supply. These supply chain issues are a significant hindrance as the company pushes forward with its electric vehicle (EV) initiatives. Any delays in the supply chain can result in production slowdowns, which further affect the company’s ability to meet market demands and achieve its sustainability goals.

Difficulties in implementing the company’s savings and efficiency program also pose significant hurdles. Volkswagen’s ambitious plans to streamline operations and cut costs have faced numerous setbacks. The internal resistance to change, coupled with the complexity of integrating new processes and technologies, has made it difficult to achieve the desired efficiency improvements. The company has been working hard to address these issues, but progress has been slower than anticipated.

Furthermore, governance issues within the company, where Blume plays a significant role, cannot be overlooked. Notably, the 55-year-old is still the only manager leading two DAX-listed companies: VW and Porsche. This dual role has sparked controversy and concern among shareholders and industry experts alike.

“We view Oliver Blume’s dual role very critically, as it not only leads to an accumulation of offices but also to conflicts of interest and questions regarding Mr. Blume’s time management,” says Janne Werning, ESG expert at Union Investment fund company. The potential for conflicts of interest is particularly troubling, as decisions made in one company could have significant implications for the other. Additionally, managing the demands of two major corporations raises questions about the effectiveness and efficiency of leadership.