Volkswagen Group's decision to save 3.7 billion euros in costs at its core VW brand by cutting 30,000 jobs around the world would seem like a logical and necessary measure given the enormous losses stemming from its diesel-emissions scandal.
But in truth, this landmark restructuring pact has nothing to do with emissions cheating and everything to do with past excess.
As Group CEO Matthias Mueller admitted in an interview with a German newspaper on Sunday, the VW brand “packed on fat during the boom years.”
Despite last year’s record loss and estimated costs of roughly 18 billion euros stemming from the scandal so far, VW’s books show its auto operations had more than 31 billion euros in cash at the end of the third quarter, and besides, staggering as the fines and settlements may be, that money won’t all be spent at once.
The company’s war chest was mostly topped up by brands such as Audi and Porsche over the years because VW brand has suffered for years from a bloated fixed cost base and low productivity compared with its siblings.
VW brand chief Herbert Diess wasn’t exaggerating when he called this the biggest restructuring plan in the automaker’s history . Never before have German unions allowed VW to eliminate so many jobs. More than a decade ago VW labor leader Bernd Osterloh accepted a reduction of 10,000, or 10 percent of the German workforce at the time. VW’s domestic cuts – 23,000 of the 30,000 jobs -- are twice as deep as anything its German unions have accepted before.
So it shouldn’t be surprising to find headlines such as this from the Financial Times: “VW to cut 30,000 jobs in wake of diesel-emissions scandal.”
There is, however, no causal relationship to suggest that last week's cuts were brought about by consumers turning their back on the company in large numbers following the diesel crisis.
No data supports that hypothesis.
Ironically the only place where customers are abandoning the VW brand is in Brazil, where diesels have been banned in the country since the oil crisis of the 1970s.
Global demand for cars built by the scandal-plagued VW brand appear to have already turned the corner with global volumes rising 4 percent in October, the third consecutive monthly jump in demand, and management is confident that annual sales will grow this year.
Likewise, roughly every second car sold in Europe continues to be a diesel just as in recent years, and there is little to indicate that Volkswagen has been off-loading its cars at discount prices either.
Distribution costs as a ratio of revenue at the group’s overall automotive business -- an indication of incentive spending -- remained flat at 11 percent in the first nine months of this year versus the comparable period in 2015.
While margins at the brand have generally been in the low single digits, far off from its target of more than 6 percent, it only once posted a quarterly loss from its ongoing operations since the scandal, excluding one-off charges for recalls, fines and settlements, naturally. But it makes sense to strip these out to get an accurate picture of the underlying business.
And that picture is bad, this is nothing new. The VW brand has for years operated at a level of profitability far below its potential -- something management has openly acknowledged as far back as July 2014 when a 5-billion-euro savings program was announced and models like the three-door Polo were trimmed from the lineup.
So these steps announced on Friday were just as necessary before the emissions-cheating scandal as they are after it, and they needed to happen one way or the other.
That is after all, the whole reason why VW poached cost-killer Herbert Diess from BMW last summer to run the VW brand. No one, including labor leader Osterloh, was under any illusions about this.
VW’s shocking crime only served as a wake-up call to the rest of the workforce that the good old days really were over. So while it may be tempting to associate this past week’s momentous restructuring deal with the scandal, it’s merely a coincidence.
Believing otherwise lets those responsible for the excesses of the past hide behind the scandal and deny their accountability.