Volkswagen faces a race against time, with as little as a year to address rapidly falling sales in Germany, according to its finance chief. The company is even contemplating closing a factory in its home country for the first time in 87 years.

• In 2015, diesel made up 52% of new car sales, peaking at 11 million units in 2019.
• The Dieselgate scandal soon followed, where Volkswagen was found to have manipulated diesel emissions, leading to the prosecution of CEO Herbert Diess on September 24, 2019. Executives were accused of concealing the scandal’s massive financial consequences from shareholders, resulting in a loss of over $30 billion and a nearly 40% drop in stock value.
• Despite Diess’s attempts to steer Volkswagen in a new direction, he faced significant opposition from unions, senior managers, and local politicians.
• In July 2022, Diess resigned as CEO amid discontent from labour representatives, despite previously being recognised as one of the "Best CEOs in the World" by CEOWORLD magazine in 2018. His departure further stalled the company’s transformation.
• The scandal did, however, push Volkswagen to focus on innovation, hiring a new CEO and adopting a new strategy. Volkswagen set its sights on becoming the world’s top automaker and expanded production capacity to 14 million vehicles.
• Volkswagen’s sales have since plummeted, making up just 13% of total sales in the second half of this year.

In a recent Bloomberg article, Chris Bryant pointed out that:

“The core VW brand is barely profitable, and the entire group is valued at just €50 billion ($55 billion). After deducting Volkswagen’s majority stake in Porsche, this implies the remainder of the group is worth next to nothing.”

Key Challenges:

• The Dieselgate scandal shattered consumer trust in diesel vehicles, causing a long-term decline in internal combustion engine (ICE) sales since 2019 - an example of how reputational damage can cripple a brand.
• Volkswagen abandoned its critical “entry segment” of cars priced between €10,000 and €20,000 ($10k-20k), a move that puzzles many, given that it was their stronghold. As the market polarises between High Volume (Value) and Low Volume (Luxury) sectors, the once highly profitable middle market is shrinking which has had an impact of Volkswagen's share of the market. Why did Volkswagen ditch its 'sweet spot' to focus largely on a market it wasn't well prepared for?
• Volkswagen has lost significant ground to local competitors in China. Although Volkswagen's electric vehicle (EV) sales started strong, they have plateaued since 2023, and two-thirds of EVs in China are now cheaper than VW’s internal combustion models.
• Since Diess’ departure, the company has struggled to keep up, raising questions about its succession planning. Was the right leadership put in place or put in place too late?
• Volkwagen's cost structure is increasingly unsustainable, particularly with 44% of its global workforce located in Germany, despite holding only 13% market share there. Could Volkswagen have applied better organisational design strategies to manage these costs earlier? Was its People function able to critically review the design of the organisation or was this seen as business as usual?

The Question Now:

Can Volkswagen move fast enough to avert the looming crisis? With a slow-moving and cautious corporate culture, the company risks falling behind in today's rapidly changing automotive landscape.

There are so many lessons here for other organisations.