When the German giant Volkswagen starts shaking, the whole automotive world stops for breath. And while VW is no mere small, German manufacturer but a global automotive powerhouse in its own right, things are seriously dire at Wolfsburg HQ. The company leadership themselves are even ringing the existential bell on the company’s future, according to German press outlet Spiegel, the latest in a growing number of signs that this is a crisis of epic proportions for the famous car maker. “Worst internal situation for years at Volkswagen Group”, as they describe it.
According to an internal survey conducted among VW management team members, a total of six out of nine agreed the current company situation was existential. Those results put particular emphasis on the poor performing operations in China and North America. Consequently, the board is calling for a “radical strategy review”, a desperate attempt at some form of radical rethinking at the struggling company.
This is not the same as “poor quarterly results” but a desperate fight for the very survival of the brand. Unfortunately for everyone the financial figures speak even more clearly with group profits down 44% in 2025 to a dismal 6.9 Billion enough of a decline to put the Volkswagen board on a direct collision course with their very own shareholders who are questioning whether the company can really afford to pay out some 2.6 Billion for share dividends in time for the annual general meeting.
1. Volkswagen’s Profits Take a Devastating Hit
The number’s are just as bad over at Volkswagen as group profit for 2025 crashed 44 percent to 6.9 billion in the year to end December and will pit the board against its shareholders next week when shareholders gather at the company’s annual general meeting over a proposed 2.6 billion dollar dividend payment. They will want to know how the board expects them to approve the payment of such an enormous sum when the balance sheet looks so severely cracked.
Financial Decline Key Points:
- Group profit fell 44% in 2025
- Total profit dropped to €6.9 billion
- Planned dividend of €2.6 billion under fire
- Board facing shareholder opposition
- Financial foundations showing deep cracks
Corporate executive drama is nothing new to any boardroom but, this one is resonating with its effects down in the factories too, leaving a lot more of our workforce unsure about the future. Never has executive drama, and ground reality, been more of a gulf, and the weight upon every working employee is getting greater quarter after quarter.
2. Factory Workers Bear the Brunt of Corporate Struggles
Volkswagen: decline of ordinary workers The Oslobrück Volkswagen factory, home to about 2,300 employees, describes the fall of a corporation through the eyes of a typical worker. It’s obvious the work is no longer there. The T-Roc Cabrio’s production is slowing down; production is stopped for a week more during the summer closing, already postponed to the beginning of August; work in Os brück will be four days instead of five in 2021. “No one knows anything about the future,” they repeat there.
Factory Floor Impact:
- Osnabrück plant workforce of 2,300 affected
- T-Roc Cabrio production being scaled back
- August shutdown extended by one week
- Four-day work week now implemented
- Management seeking alternatives for the plant
It’s all management scrambling for options, and one solution to the plant is that it’s actually hard to believe handing the plant over to defense industry suppliers like Rheinmetall, Rafael from 2027 on. If a plant that built cars for citizens is reorientated to arm citizens. That says a great deal about this whole shift within the industry.
3. A Radical Pivot Toward Defense Manufacturing
Possibly the more radical solution for the Osnabrück site being discussed: giving it into the hands of defense companies such as Rheinmetall or Rafael. But this one factory is symptomatic of a much more brutal plan to shed about 50,000 jobs in German. The idea that the car production shop is now becoming an armament plant also says a lot.
Defense Pivot Considerations:
- Rheinmetall and Rafael named as potential partners
- Handover potentially beginning from 2027
- Part of a broader 50,000 job cut plan by 2030
- Symbolizes a massive industrial transformation
- Final decision expected before year end
But it’s more than just this one factory, really. “It holds a lesson for the German auto industry in general this need for this huge re-assessment of what it is for and what the future for it will be. And you know this, to even have it as something that’s been up for discussion at board levels. That shows the extent and depth of this current crisis for the country’s most critical industry sector.”
4. Germany’s Entire Auto Industry Feels the Pressure
These are not standalone problems for Volkswagen; rather, they signal a widespread sickness in the heart of the world’s largest exporter and the industry that powers Germany. Rivals are suffering, too: BMW, another major German manufacturer, warned on profit last month and plans further cost cuts after a 20% year-on-year drop in China sales from January to May; it predicted the pre-tax profit will slip 10% and aims to cut its 155,000 global workforce.
Industry Wide Decline:
- BMW issued a profit warning for 2025
- BMW China sales dropped 20% in early 2025
- BMW pre-tax profit expected to fall 10%
- BMW workforce of 155,000 facing cuts
- German auto sector losing its economic dominance
And the agony isn’t confined to the supply chain. Major Stuttgart area parts supplier Mahle will reduce another 1,000 employees most in administrative functions and in research & development due to pressure from global competition from China, damaging U.S tariffs and the expense of ending the gasoline engine.
5. Supply Chain Job Losses Reach Historic Levels
Pain ripples throughout the supply chain. This week, huge Stuttgart based parts supplier Mahle announced another 1,000 layoffs in both administration and R&D. The justification for the axe is a “triple crisis”: intensified price competition from China, punitive US tariffs, and an expensive and complicated ban on internal combustion engines. Those stories, when collected together, paint an almost incredible total.
Supply Chain Crisis Facts:
- Mahle cutting 1,000 jobs in Stuttgart
- Cuts focused on administration and R&D
- Chinese competition cited as key pressure
- U.S. tariffs adding significant cost burden
- Internal combustion phase out proving very costly
“Germany’s problem, basically, is too expensive. It costs more than $40 an hour in wages in Germany, vs $30 an hour in the US, and less than $10 in China. When you pair that with expensive electric power,” industrial electricity in Germany is more than twice as expensive as in the US “you’ve got a good recipe for the industrial collapse we’re now witnessing unfold throughout Germany. We’ve watched this happen in front of us as an all of us.”
6. Germany’s High Costs Create an Unbeatable Disadvantage
Germany’s problem, said industry analysts “The single problem that’s been gnawing away at Germany’s automobile advantage have been German’s’ enormous cost of doing business. Labor costs alone, at over $40 an hour, compared to a comparable cost around $30 an hour for an auto-worker in the United States and just under $10 an hour in China, create a fundamental disconnect that’s impossible to bridge. Especially if one is also going to throw into the mix industrial power costs which run higher than anywhere else in the United States. Such conditions makes consistent and sustained, large scale, profitable car production almost impossible.
Germany’s Cost Disadvantage:
- Labor costs exceed €40 per hour in Germany
- U.S. labor costs sit at around €30 per hour
- China labor costs are under €10 per hour
- Industrial electricity prices far higher than U.S.
- Over 4,500 corporate insolvencies in Q1 2026
The tightness is obvious in other parts of the broader economy. Germany has already seen more than 4,500 company insolvencies this quarter the highest level in 20 years. The insolvency numbers signal that the crisis facing Germany’s automotive industry is just one of many issues currently plaguing Europe’s largest economy.
7. Dealership Staff Deliver Exceptional Service Amid Crisis
While some executive offices deal with crisis and economic worry, a totally interesting contrast is played out each day at the VW dealerships. Customers, it would appear, are in great hands when, even with no appointment, they swing by with all of their worries especially, given these current reports, that their car is doing what it does, so well that they hardly even notice any corporate fussing. That VW spirit is still thriving.
Positive Customer Experience Highlights:
- Staff praised for courtesy and professionalism
- Customers accommodated even without appointments
- Drive in service bays keep customers out of rain
- Friendly greetings from all staff members
- Appointment times consistently honored
And you’ve got this weird dichotomy of a top level company that is really a top level, high fight company, versus the service aspect that is there on the ground that is completely, absolutely phenomenal and human. What does it say for that? It just talks so much about your technicians, your service writers who have been out there front, building those customers up over time, service by service, regardless of the war. That’s what you got at that level.
8. Investment Freeze Puts Volkswagen’s Future at Risk
Back in the world of business, cash strapped it was so bad the corporate has hit the kill switch on their own existence The investment group won’t give it approval now for the nearly billion mega deal investment it requires if they plan to invest in the future models of the automobile and renovate of their manufacturing plant of almost a hundred plants all across globe. With $11billion hole reported to finance investment plans for the future in 2026, a large $160billion investment into production and operation spending of five years at threat.
Investment Crisis Key Points:
- Supervisory board delayed multi billion investment plan
- Nearly 100 factories need urgent modernization
- Reported shortfall of around €11 billion for 2026
- €160 billion five year budget now in jeopardy
- Development projects across brands set to stall
The fallout of this investment halt will be extensive. Development initiatives will grind to a halt and affect not just VW, but also its vast network of suppliers. It will be a particularly galling decision for the Audi brand. The rationale behind building an Audi plant in the United States was to counter such rivals like BMW and Mercedes-Benz who are protected from U.S. Tariffs by not having their products come from overseas factories.
9. Executive Bonus Controversy Deepens the Crisis
Compounding this crisis is yet another area where it courted immense controversy and controversy now erupts over it all, it would appear. Board members will, we are told, receive as much as 1.75m each in bonuses in the year where the profits of the organisation halved and the workers went without up to £5k in bonus cash. The bonus payment was apparently secured by creative accounting selling bad debts in order to bring the firm into net cash, or other accounting measures.
Bonus Controversy Breakdown:
- Workers lost bonuses of up to €5,000
- Board members set to receive up to €1.75 million each
- Creative accounting practices allegedly used
- Receivables sold to inflate net cash flow figures
- Cash flow pushed above the bonus trigger threshold
The optics here can’t possibly be good and in the worst case, very damaging to the workforce, the very people that are expected to endure sacrifice in turning around the business from the leadership who presumably may not experience the same sacrifices. What do these decisions says about the culture and the priorities at the top?
10. Volkswagen Stands at a Historic Crossroads
Volkswagen is at a historic juncture. Sales declined 12% in North America and fell 6% in China, where local competitors have gained sharply. The move toward fully electric vehicles has become a double edged sword; although sales of fully electric cars surged 55% and now represent 22% of the group’s backlog of orders, costs of research and production are hurting the carmaker badly in terms of profitability. Porsche’s collapse in profit, from more than 5 billion to 90 million, has had a particularly cruel effect.
The Road Ahead:
- North America sales down 12%
- China sales declined 6% amid local competition
- Electric vehicle sales up 55% yet still unprofitable
- Porsche operating profit collapsed to just €90 million
- Current operating margin of 4.6% deemed insufficient
The future of one of the world’s most famous brands, the jobs of tens of thousands of workers, the health of the Germany industrial core are in question. A plea by its own supervisory board that the company needs a bold about face means cosmetic adjustments alone won’t do. It will need a reinvention or will die.
