Volkswagen, the largest carmaker in Europe, is contemplating the most radical overhaul in its 89 year history, and one option on the table is to break the company apart. Under plans that chief executive Oliver Blume has put before senior management, the group is weighing whether to spin off its core Volkswagen passenger car brand and its components business into separate, independent companies, while cutting as many as 100,000 jobs and winding down production at four German plants. The supervisory board is due to take up the question on 9 July.
The pressures forcing the debate are familiar across the German auto industry. Chinese rivals are flooding the market with cheaper electric cars, energy and labor costs at home are high, demand has softened, and the shift to electric vehicles has proved slower and more expensive than the company once hoped. The factories under review, in Hanover, Zwickau, and Emden, along with an Audi site in Neckarsulm, would be run down as the models they build reach the end of their lives. For a company built on scale and the promise of stable jobs, the sheer size of the retreat is startling.
Analysts see three broad paths from here. The first is a genuine breakup, in which the mass market Volkswagen brand and the parts business are cut loose to stand on their own, freeing profitable premium marques such as Porsche and Audi and letting investors value each piece on its own merits. The second is a deep restructuring that keeps the group intact, closing plants and shedding workers while preserving the conglomerate that has defined the company for decades. The third is the messiest, a watered down compromise in which the boldest moves are blocked and the group limps forward on half measures.
Which path wins may be decided less by strategy than by power. Labor representatives and the German state of Lower Saxony, which holds a 20 percent voting stake, together command a majority of the supervisory board, and any spin off would need more than 80 percent shareholder approval under the special Volkswagen law, effectively handing Lower Saxony a veto. That makes a clean breakup the hardest option to pull off, however appealing it may look on a spreadsheet. The coming weeks will test whether a company this large, and this deeply entangled with politics, can remake itself before its problems force the decision for it.
