Mass job cuts loom at VW as profits fall steeply on China sales slump

Volkswagen has reported a steep fall in profits and cut its revenue forecast amid a sales slump in China, as the German carmaker pushes through a brutal cost-cutting programme that includes axeing up to 100,000 jobs.

VW said it expects sales revenue to fall by up to 3% this year, a reversal of a previous forecast for a 3% increase on last year’s €321.9bn (£275.3bn), because of a sales slump in the highly competitive Chinese market.

The sales slump will increase pressure on the world’s second-largest maker of vehicles to cut costs. Earlier this month VW’s supervisory board rejected the plans by the chief executive, Oliver Blume, to shut four factories in Germany, as the manufacturer confirmed it was raising the job cuts target to 100,000, double the number already agreed by unions.

Volkswagen’s operating profit fell by 9.5% to €3.5bn in the second quarter, below analysts’ estimates of a small increase to €3.9bn, as Blume battles with unions to push through a restructuring programme.

On Friday the company said the proposed additional job cuts would mostly be in administrative positions across its global business.

The plans also include reducing Volkswagen’s model line by up to half.

Volkswagen employs more than 650,000 people across all its brands, which include Audi, Bentley, Skoda, Seat, Porsche and Cupra, and has been hit hard by growing – and cheap – Chinese competition and the struggle to shift to electric cars.

In the first half of this year, Volkswagen delivered 6.3% fewer cars globally, about 4.1m, mostly because of its travails in China.

Volkswagen sales in China have fallen by more than 31% in the first half, against increases in Europe and North America.

“The extent to which western carmakers are being squeezed out of the Chinese car market by domestic operators is laid bare by Volkswagen’s latest update,” said Russ Mould, the investment director at AJ Bell.

Blume said on Friday that Chinese carmakers had sharply increased exports, which was adding pressure in Europe. The restructuring was essential to make the company “more innovative, faster, more attractive and robust”.

Volkswagen’s share price fell 1.5% after the release of its latest financial results and is down 66% over the past five years.

“After nearly four years at the wheel as chief executive, Oliver Blume is likely to come under increasing pressure,” Mould said. “His plan to steer Volkswagen back on to a growth path involves drastically cutting costs, including by slashing the company’s headcount. There are also plans to reduce the number of models and sell off non-core assets to make Volkswagen a more efficient machine. Pushing these through may be difficult given likely opposition from unions, and whether they are enough to win over the market is an open question.”

The tough market in China has also hit other carmakers, with BMW last month cutting its profit guidance for this year because of the disruption caused by the Iran war and the company’s struggles in the Chinese market.