Volkswagen paid out billions in dividends — now it is closing plants

Volkswagen has entered a new phase of crisis: CEO Oliver Blume has announced deep cost cuts as the group grapples with weak sales in China, US tariffs and the bill for restructuring — and faces questions over management responsibility after years of large shareholder payouts.

Blume visited the Volkswagen plant in Emden, which employs about 8,000 people and builds the ID.4 and ID.7, and which is among the sites threatened with closure. He told workers that management would share part of the burden: a quarter of management positions are to be eliminated, though no further details have been released.

Company-wide, roughly 50,000 of nearly 300,000 jobs in Germany are said to be at risk as Volkswagen seeks to cut costs. The pressure is compounded by a sharp fall in Chinese demand — Volkswagen today sells about 1.5 million fewer cars per year in China than it did in 2019 — and by additional costs stemming from American tariffs.

Dividends, investment gaps and contested bets

Critics argue that some of Volkswagen’s current pain reflects earlier decisions on profits and investment. Automotive analyst Frank Schwope estimates that around €10 billion could have been redeployed into earlier restructuring or into investments such as battery technology — Volkswagen only started its own battery cell production in Europe last year — or into accelerating new model programs.

Ownership patterns help explain why dividend policy has mattered: the Porsche and Piech families hold 31.9 percent of shares via Porsche Holding SE, Qatar Holding owns 10.4 percent and the state of Lower Saxony holds 11.9 percent, with the remainder in the hands of institutional and private investors.

An analysis by the Dutch institute SOMO shows a wider trend across European carmakers: profits rose from €10.5 billion in 2006 to €71.8 billion in 2023 — almost sevenfold — while capital expenditure grew by only 18 percent in the same period. The investment share fell from 28 percent to 16 percent, while in China it ranged between 26 and 38 percent.

Others point to misallocated spending rather than insufficient spending. Ferdinand Dudenhöffer highlights Volkswagen’s investments in Cariad, the in-house software unit, where roughly €1.5 billion was reportedly spent on autonomous-driving programs that have so far underperformed. Volkswagen’s 2022 purchase of Europcar for €2.5 billion has also faced setbacks, with later staff cuts and losses. Dudenhöffer adds that Volkswagen’s early electric-vehicle strategy favoured too-large models and only now is being adjusted.

The clash between those who say Volkswagen should have invested more — particularly in batteries and new models — and those who argue funds were simply spent poorly will shape the debate as works councils meet. For now, the company must both cut costs and finance new technologies as it tries to restore competitiveness in its most important Asian market.

Photo: Profimedia