Volkswagen’s Cost-Cutting Deal Falls Short of Expectations
The automotive giant’s shares took a 3% hit in early trading on Monday, as investors expressed uncertainty about the company’s recently announced cost-cutting agreement with unions. While the deal has been hailed as a “Christmas miracle” by unions, analysts are skeptical about its ability to drive meaningful change.
A Watered-Down Agreement
Friday’s agreement, which calls for over 35,000 future job cuts and a 25% reduction in production, fell short of management’s initial ambitions and market expectations. Notably, the deal lacks a sense of urgency, according to Jefferies analyst Philippe Houchois. This lack of urgency is particularly concerning given the rapid pace of change at rival firms and the highly competitive environment in the sector.
Headwinds Ahead
Volkswagen’s earnings momentum is unlikely to improve significantly in 2025, thanks to weak demand in China and potential tariffs following Donald Trump’s election. Moreover, analysts at Jefferies and ODDO BHF believe that more details are needed to understand how the company plans to achieve its announced cost cuts of 15 billion euros per year.
A Long Road Ahead
The deal’s impact on costs will only become visible after 2025, marking the beginning of a 5-year process. While J.P. Morgan analysts have called the deal “a positive step in the right direction,” it’s clear that Volkswagen still has a long way to go.
Market Reaction
Volkswagen shares were down 2.39% at 86.68 euros in Frankfurt as of 1051 GMT, with shares in German peers BMW, Mercedes-Benz, and Porsche Automobil Holding also taking a hit. This year, Volkswagen shares have plummeted over 20%, trading around their 2010 levels.
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