Volkswagen Plans Revamp Brand to Increase Its Margins - The Detroit Bureau

Volkswagen Plans Revamp Brand to Increase Its Margins – The Detroit Bureau

Time Stamp: May 18, 2023 12:05 AM
Source Node: 2097913
VW COO Thomas Schaefer

An internal memo from Thomas Schaefer, chief operating officer of the Volkswagen brand, states the German automaker is looking to overhaul the brand to make it more efficient and thus increase its margins.

The memo comes as the Volkswagen planned a 6.5% return on its core brand in the first quarter of 2023, the best it could muster was 3%. Volkswagen is seeking to increase its returns by a minimum of €3 billion.

“We can see that our brand — despite all its strengths — is not yet on a sufficiently solid economic footing,” Schaefer’s memo states, according to German business daily Handelsblatt and a Reuters report. 

VW’s COO cites a difficult climate as the cause, citing the potential for a recession, geopolitical unrest, shaky supply chains, and skyrocketing raw material and energy prices.

What’s needed

VW Chattanooga line
VW’s plans to increase its return shouldn’t affect line workers, VW said.

“We need to create good, competitive returns in times of crisis and in a continually volatile world.”

What’s not clear is whether there will be any layoffs. “Profitability and job security are equally important and common goals,” said Workers council chief Daniela Cavallo to Handelsblatt, adding at this point, workers don’t seem to be affected by the move. 

Instead, Schaeffer said he aims to boost brand synergy through collaborative development and production, including the use of shared platforms in some instances.

“Pressure is mounting. The Volkswagen brand must act,” he wrote.

Hatchbacks no longer hot 

Volkswagen’s e-Golf

But Volkswagen is being challenged as demand for hatchbacks, such as the once-bestselling Golf, collapses along with coupes and sedans in recent years. Buyers around the world migrating to CUVs and SUVs, much as they are in the United States.

In fact, the bestselling car in Europe in the first quarter of 2023 was an American crossover: the Tesla Model Y. It was followed by the Renault’s Dacia Sandero in second place. Volkswagen did place third, however, with its T-Roc crossover. Rounding out the Top 5 were the Peugeot 208 hatchback and the Opel/Vauxhaul Corsa. 

“We will have to see how the (compact hatchback) segment develops” by decade’s end, Schaefer said in interview in last month. But Schaeffer has also hinted that the Golf will return as an e-Golf, or perhaps, ID.Golf.

In February, German news site Handelsblatt said the new BEVs would be built on an updated MEB electric platform in Wolfsburg side-by-side with the gasoline-powered Golf and Tiguan. If the plans prove true, an e-Golf could reach showrooms by 2026, but uncertainty remains over the project.

A new scalable architecture

Tesla Model Y 2
Tesla’s Model Y was the top-selling car in Europe in Q1 2023, not the VW Golf.

Everything centers around Volkswagen’s Trinity project, which makes use of a new SSP (Scalable Systems Platform) software-guided platform to enable autonomous driving. The new EVs were planned to be produced at a brand-new factory, with building set to begin the following year and models expected in 2026. But due to delays in getting the software ready, that project has now been postponed until the end of the decade.

The idea was an effort by Volkswagen to compete with Tesla, which has established itself as the most well-liked American brand sold in Europe.

But Schaeffer’s message summarizes a vexing problem for the automaker. Consider Volkswagen ID.3 production. It takes three times longer to build than a Tesla Model Y, which requires a mere 10 hours. In fact, Toyota, Kia, and other manufacturers are now measuring their own EV manufacturing efficiency against Tesla’s.

Yet part of the problem could stem from Volkswagen’s reputation in America, one no longer renown for its reliability. This could be why the brand is reviving the International Harvester Scout as a new line of EVs, rather than using the VW brand.

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