How Volkswagen slid from German engineering icon to innovation laggard
| Wolfsburg and Braunschweig, Germany
Volkswagen has been everything to machinist Lothar Herrmann – and to Germany’s global image as an engineering powerhouse.
Son of a carpenter and a butcher’s helper, Mr. Herrmann spent his childhood in Braunschweig in the shadow of the iconic carmaker’s factories – emblems of Germany’s postwar Wirtschaftswunder, or economic miracle.
When he was in his 20s, Mr. Herrmann was one of the fortunate few – a quarter of applicants – who made the grade to join the Volkswagen assembly line. And for the past 36 years, his initials have been stamped onto every brake disc or chassis he’s assembled – part of the company’s vaunted accountability practice.
Why We Wrote This
A story focused onVolkswagen has long epitomized the spirit of German innovation. But that luster has tarnished, as the company has struggled to keep up with shifts in consumer and societal demands.
“Maybe pride is the wrong word, but I’ve had positive feelings to look at a car and say, ‘It drives with my parts,’” says Mr. Herrmann.
Three decades of that privileged factory work have given him and his family the perks of a stable, middle-class life: travel abroad, adventure motorcycle trips, a closet full of athleisurewear, a room-by-room renovation of his childhood home where he and his accountant wife now live. His tight unit of co-workers is “family” with whom he’s raised children, played in soccer clubs, attended Christmas markets,and gone on professional development trips over the decades.
It’s an existential loss that he and thousands like him are contemplating – stunned that Volkswagen is for the first time in its 87-year history considering plant closures in Germany. The company has been caught off balance by a changing world. It got a late start in electric vehicle development, which has given the Chinese the upper hand. There’s declining demand for its products in Europe as cities push for mass transit. It has failed to stay fresh with design and innovation. Its export markets are getting more protectionist. And a new generation of consumers doesn’t see cars as status symbols.
The Volkswagen Group is still profitable, driven in part by subsidiaries such as Porsche and Audi that are coveted as luxury brands. But there are obstacles ahead for the flagship VW brand, which began as a Nazi economic gambit in the 1930s and later morphed into an engine for Germany’s rise after World War II.
“When I think about it, my son has to work for another 50 years – and I don’t know if he’ll be at Volkswagen” for that long, says Mr. Herrmann, who five years ago helped his son secure a spot on the same brake assembly line where he started. “He already told me that, had he started today, he wouldn’t do the training program at VW.”
Volkswagen’s travails are symbolic of the nation’s overall economic malaise and a political crisis that collapsed the government in December, paving the way for early elections Feb. 23. For decades Germany has passed the buck on its future, relying on Russia for its energy needs and on exports to boost its manufacturing economy. It has underinvested in digital infrastructure; and the rigidity of its bureaucracy and labor markets and a demanding regulatory environment have left the nation vulnerable to global economic change.
Economic woes are particularly heartfelt in Germany when it comes to Volkswagen, a source of national identity, pride, and stability.
Just look at the German public’s collective shoulder shrug when top-flight conglomerates such as Bosch, ThyssenKrupp, and Siemens announced thousands of job cuts, says Thomas Puls, senior economist at the German Economic Institute.
“On the national level, you basically had no reaction,” says Dr. Puls. “Then Volkswagen came and said, ‘We want to cancel the treaty which prohibits us from closing plants and laying off people’ – and suddenly everything exploded and the German public started screaming, ‘Oh no, oh no, now it’s over!’”
He adds, “Volkswagen is an icon of the recovery after the Second World War. ... And its golden age is essentially over – there’s a perfect storm in all relevant markets. The German car and automotive industry overslept. No longer can German industry save itself with strong exports or a focus on premium markets – we have to admit we have overcapacity.”
Volkswagen employees sense signs of trouble
There was a time, not long ago, when Mr. Herrmann’s Volkswagen factory parking lot was filled with, well, Volkswagens. “You didn’t dare drive another car to work,” he says.
Now, sitting at a café near his factory building mentally surveying the parked cars he passes on the way to the factory gate, he says there is a smattering of non-VW cars among the VW Golfs and Jettas, and the Audis and Porsches.
“There are Mercedes [made by Daimler], Korean cars like Kias and Hyundais, and everything else now,” he says.
Signs of trouble, like this, have been noticeable. Anxious murmurs abound among workers over the fact that Volkswagen wants to reduce the number of trainees, or that applicants for factory work have hit new lows. When he started a three-year training program nearly four decades ago, Mr. Herrmann says, 4,000 applicants would vie for 1,000 spots.
“Back then it was difficult to get in – without connections, you would have never had a chance,” says Mr. Herrmann, explaining his back door into the company. “Friends of my parents had told me, ‘See that you apply here.’”
Volkswagen could pick and choose among top high school graduates. Today it’s said that the company has had to lower standards to fill its trainee ranks. “The top candidates will do the apprenticeship and then go back to school or university,” Mr. Herrmann says.
Company culture is tenser than in his early years. People used to say what they thought about their work or their superiors, but trust has eroded among co-workers concerned about being reported to management, says Mr. Herrmann.
Still, he ventures his own blunt opinion about the cars themselves: “I get the same quality now with the Koreans and the Japanese, and their software is better.”
It’s a difficult admission, considering how deeply a blue-collar Volkswagen worker’s identity is tied up with high social status in Germany.
“Even in the 1950s, observers said that the Volkswagen workers’ demeanor corresponded to that of a city councilor or a government civil servant in terms of self-image,” says Manfred Grieger, Volkswagen’s chief in-house historian through 2016.
Martin Bednarek started at Volkswagen 26 years ago installing vibration dampeners and now works in human resources. He says that his work has created deep connections with the region – the three factory towns of Wolfsburg, Braunschweig, and Salzgitter in which Volkswagen is the largest employer – and gives him social cachet.
“I have lots of friends who are doctors and architects ... and Volkswagen spills over when I talk about [my work],” says Mr. Bednarek, whose home garage has reflected his career trajectory as he upgraded from Polo to Audi to Porsche – all Volkswagen brands.
Volkswagen began as a Nazi vision for an accessible “people’s car”
It was that sense of community that the Nazis originally wanted to capture back in 1937, when they launched Volkswagen to make an accessible “people’s car.”
Adolf Hitler wanted a vehicle that could transport five, travel efficiently, and be manufactured at a cost low enough that the average German could buy one.
Hitler failed, says Mr. Grieger, the former corporate historian. “Adolf Hitler saw himself as a genius, but the plan was far from reality.” Though the National Socialists did not conquer the world, their Volkswagen concept – in the hands of a market economy and democratic government – eventually did.
The Nazis erected the first car factory in 1938 in the city now known as Wolfsburg and tapped engineer Ferdinand Porsche to design what later became the Beetle.
The plan had been to launch Volkswagen as a symbol of Nazi-led prosperity and technical advances. In reality, however, the town that they named “City of the Strength Through Joy Car,” after one of their propaganda campaigns, ended up being a “shantytown” with facilities repurposed during the war for the production of 10,000 military vehicles, says Mr. Grieger.
The planned millions of cars never came to pass under Hitler, says Mr. Grieger. “The utopian excess of the Nazis’ ideas only became reality in the growth years of the postwar period – it was the Allies who returned this factory to civilian production.”
Indeed, it was under British control that a revived Volkswagen began producing large numbers of Beetles – the tiny, slow, but economical “bug” of the “Think Small” marketing juggernaut. It was the first import to challenge Detroit, and found favor with the American hippie counterculture.
Global sales of the Beetle helped fuel Germany’s mid-20th-century economic boom, as it became one of the bestselling cars in the world and cemented the country’s global status as an engineering powerhouse. The 1970s brought the ubiquitous Golf – one of the most successful car models in history just behind the Toyota Corolla – while later decades saw Volkswagen acquire luxury and sports cars including Bugatti and Lamborghini.
For the most part, profits flowed. The success might have made Volkswagen’s leaders “self-confident,” says Mr. Grieger. “And this perhaps led vehicles to be developed in Germany in a way that’s ultimately more expensive than necessary.”
Long reputed for highly trained and well-paid workers from the engineer to line worker, Volkswagen also prided itself on quality, using pricey hard foam where others used plastic, imposing strict quality control measures, and investing in innovation – which gave the industry air-cooled rear-mounted engines and direct-injection diesel technologies, among other advances.
Volkswagen’s strategic arc has not been without blemish: The company lost global market share to Japanese carmakers in the 1970s and later missed the SUV craze in the United States. In 2015’s “Dieselgate” scandal, Volkswagen was found to have faked the results of emissions tests.
In recent years, Chinese automakers have emerged as a potent threat. China, the largest car market in the world, has turned more protectionist, and its homegrown car company BYD, “Build Your Dreams,” outsold Volkswagen in China in 2023 for the first time. BYD moved 2.6 million units to VW’s 2.3 million – its success fueled by small cheap vehicles named after nimble animals such as the Dolphin and Chinese dynasties like the Song.
Volkswagen has tried to develop its own batteries and proprietary software, but the expensive investments haven’t yet born fruit. Also, its efforts to do it all itself sapped time and resources. The company’s long-reputed precision and innovation was required to develop cars fueled by combustion engines, but might be overkill in the electric vehicle era, says Helmut Becker, an economic consultant and auto industry expert.
“Especially when the Chinese are building them as computers on wheels,” says Dr. Becker. “Electric cars are basically so simple that everyone can do it. You don’t need special skills. Volkswagen’s mistake was that they abandoned [further development of] the combustion engine, and the electric Volkswagen is not there.”
Economist Claudia Kemfert says she’s been forecasting trouble for at least a decade “because Volkswagen isn’t innovative enough, and not fast enough with electric mobility, and then the diesel scandal,” she says.
“It was only a matter of time until we saw an impact on the company,” she adds. “It will be a structural change – they cannot move forward with this high number of employees. German car manufacturing must make itself fit for the future – it’s healthier to go through this now than pass it on to the future.”
Fractured confidence among Volkswagen employees
There may be a challenging transformation coming, but the organizations speaking for the workers – Volkswagen’s internal Works Council and IG Metall, one of the world’s most powerful labor unions – won’t go quietly. The union has promised “the toughest collective bargaining battle Volkswagen has ever seen.”
About 100,000 Volkswagen workers in Germany began walking off the job in November for a series of two-day strikes. Roughly a third of Volkswagen’s 300,000 domestic workers are covered by collective bargaining agreements that have secured robust benefits such as 30-day annual leave, six-week sick leave, maternity and paternity benefits, and retirement pay.
They want more. IG Metall in the past has shown great savvy in negotiating high-profile deals that balance worker needs with those of the larger German auto industry. For example, its 2018 negotiations led to wage increases of more than 4% but also secured worker retraining in a bid to make Germany competitive in the transition to electric vehicles.
With Volkswagen profits falling in the past two years, the chasm between labor and management has widened. The union still wants pay hikes and has refused to accept factory closures and mass layoffs, while Volkswagen wants 10% pay cuts and plans to shutter at least three factories and lop head count by tens of thousands.
German autoworkers are just about the highest-paid factory employees in the world, meaning they have the most to lose on a global pay scale. Volkswagen factory worker salaries with benefits are roughly $67 an hour compared with their competitors in the U.S. at $44 per hour, says Dr. Becker. In China, autoworkers in Shanghai – among the most expensive labor markets in the country – earn salaries of just $6 an hour.
Add to that the fact that benefits are more generous in Germany: They include leave and training opportunities, and a social welfare environment that includes job protection and universal health care.
But trimming the workforce will not be enough, experts say. Massive transformation is needed. Volkswagen must invest in the right technologies and address headwinds that are reversing the trends of globalization, such as rising protectionism in countries formerly open to German imports, and flagging demand in markets including the U.S. and Europe.
Management and workers must find a consensus, says Mr. Grieger. But, he adds, “There is no vision of what the company should be in 15 years’ time. That’s what’s holding both sides back. It should be about shaping the future and creating superior products that can meet people’s needs. We don’t have much of that – except for buzzwords like digitization, electrification, and mobility services.”
Volkswagen is still profitable, but plans to close three plants
Before the strikes began, back in November, a few thousand still-hopeful workers gathered for a rally outside Volkswagen Arena in Wolfsburg – home to the original 1938 factory – eager to make their voices heard.
What happens to Volkswagen workers here is a litmus test for Germany’s commitment to social values and its ability to retool for a leaner, more innovative future.
If it’s overcapacity that needs to be dealt with, says union representative Mirko Hoffmeister, don’t start with the production line.
“We are not the most expensive component – that’s management,” said Mr. Hoffmeister, nodding at workers filing off buses and gathering in front of a black stage. “If in a bad year like 2023, Volkswagen management were among the top earners in Germany, then something is wrong.”
The paper-cup coffee and sausages dipped in mustard gave the rally the feel of a backyard barbecue, and most workers chatted animatedly in small groups between speeches and a marching band performance. Yet the firecrackers and noisemakers could only thinly disguise the mood, matched by the chilly weather: Not everyone would survive.
Though the workers would fight, there seemed to be a tacit understanding that the economic headwinds might finally be too much for Volkswagen as a strange new era dawns for Germany.
“We’re still profitable, but it’s obviously scary when the board says we’re going to close three plants and carry out mass layoffs,” says Mr. Bednarek, the optimistic human resources executive who started assembling vibration dampeners as a young man.
Yet in any transition there could be opportunity, suggests Mr. Bednarek: “In the Salzgitter engine plant, you used to need maybe 200 employees on one line to build an engine from A to Z. Today you don’t need to put together the engines, but really only insert the battery.”
Though there will be less demand for line workers, he points out, with the experience of a man who ponders head count all day, there will be opportunities for white-collar workers in digitalization, battery technology, industrial design, software development, and marketing.
“If you have the right qualifications, I think you can go very far at Volkswagen,” says Mr. Bednarek.
Retraining might come too late for Mr. Herrmann, the Braunschweig machinist whose account of his three-year training stint in the 1980s paints a picture of a company with time – and resources – to do things right. He’d started by working on “small things” such as swinging a hammer onto a metal sheet, before building vises to attach to workbenches by the end of the first year.
“And it just went on until we finally got to the specialist departments,” he says.
Today, Mr. Herrmann just hopes to hang on to his job until he can retire in five or six years. “It might be tight,” he predicts. “We’d have to figure out how to survive.”
Leon Kamali is young enough that he might be able to make the transition. The freshly minted secondary school graduate passed a slew of Volkswagen recruitment tests in 2024 and qualified for a logistics apprenticeship. Yet, notably, he’s more interested in the skills he is learning on the job than in the prospect of a long Volkswagen career.
“In the training, I’ve learned a lot about logistics,” he says. He expresses the priorities of a new generation of German worker: Loyalty to a company should only be as strong as the company’s loyalty to you.
Should Mr. Kamali lose his job, he’ll go back to university and possibly return to Volkswagen – or a company like it – as an engineer or a designer.
Incidentally, he has not invested in buying a Volkswagen yet: He’s leasing.
