VW Didn’t Lose the Market, It Lost Its Way: A Leadership and Cost Crisis

Volkswagen recently said, "Der Markt ist schlicht nicht mehr da"—the market is simply no longer there. However, the reality isn't that the market disappeared; instead, it's VW that lost its way. The challenges Volkswagen faces today are not purely market-driven but rooted in strategic missteps and structural inefficiencies.

Let’s examine the two core factors behind this decline:

1. Management Mistakes: Misreading Markets and Misjudging Strategy

Volkswagen's current struggles can be directly traced to years of poor leadership decisions, especially regarding its approach to international markets and internal operations.

• Misreading International Market Needs, Especially China: Once one of VW’s strongest growth markets, China has evolved rapidly, yet VW failed to keep pace with these changes. As Chinese consumers demanded innovation in electric vehicles (EVs) and tech-driven mobility solutions, Volkswagen lagged behind. It miscalculated the level of investment needed, both in terms of product and people, to maintain its position. The result? A loss of market share to more agile competitors who understood the region better and acted faster.
• Residual Value Mismanagement in Europe: The poor handling of used vehicle residual values in Europe is another key failure. Dealers are left to fight a price war, essentially racing to the bottom. This devalues the entire brand as well as the trust of VW’s dealer network. Rather than focusing on a sustainable strategy to preserve value and support dealers, the company has been distracted by glossy presentations and overambitious growth projections. Especially after COVID-19, VW's overconfidence in market recovery led to a series of poor investment decisions that have only exacerbated its current situation.

2. An Unsustainable Cost Base: A German Manufacturing Problem

Volkswagen’s second major challenge comes from its cost base, which is too high to be competitive in the current environment.

• Manufacturing Costs in Germany: Germany, historically known for engineering excellence, has become a high-cost manufacturing environment. The economic policies that were supposed to ensure Germany’s industrial competitiveness have instead driven up costs. Combined with VW’s own overhead, these costs are now unsustainable. Unlike some competitors who have been more agile in shifting production or controlling costs, VW remains shackled by an economic model that no longer fits the global automotive landscape.
• A Workforce Mismatch: VW has historically benefited from a strong, productive workforce. However, even though the workforce’s performance remains good, the imbalance between increasing labor costs, benefits, and output is straining profitability. Worker benefits in Germany are robust—perhaps too robust given the current productivity levels. The result is that VW’s manufacturing can’t keep up with global competition, where labor costs are lower and flexibility is greater.

The Market is Never Easy: A Lesson in Business Strategy

As the automotive market fluctuates, companies must adapt swiftly and strategically. The truth is that no market is ever easy. What really matters is making the right decisions about product, pricing, investments, and overheads at the right time. Instead, it had been kicking the can down the road for too long until the proverbial sh** hits the fan.

Volkswagen’s failures reflect poor decisions across the board—failing to invest in the right technologies, mishandling used vehicle residuals, and maintaining an unsustainable cost base. What VW needs now is clear, visionary leadership that can realign its strategy, trim its cost structure, and focus on long-term market positioning. Only then can VW reclaim its lost market leadership.

Saying that the market has just disappeared isn't going to save VW or the jobs in Germany. The road to recovery is long, but it starts with acknowledging where the real problems lie.