Volkswagen Group released its financial results for the third quarter of the year, and the numbers weren’t pretty. The company, which leads Europe’s car market, reported a massive drop in profits. Operating profit plunged by nearly 42 percent, with an operating margin of just 3.6 percent. This is a significant decrease from its usual figures. Even Volkswagen’s main brand had an operating margin of only 2 percent, much lower than what the company expected.

Why Did Volkswagen’s Profits Drop?

Volkswagen’s troubles stem from a few big challenges, both inside and outside of Germany. For starters, the demand for new cars has slowed in Germany and other parts of Europe. With the economy in a bit of a slump, many people are cutting back on big purchases like new cars.

China, Volkswagen’s biggest single market, has also seen a big drop in sales. The company’s Chinese joint ventures have reported a 37 percent drop in operating margin from January to September this year. The slowdown in China has hit Volkswagen hard, as it relies heavily on sales there. Despite seeing some positive sales growth in South America and North America, Volkswagen’s total sales for the first nine months of the year dropped by 4 percent. Sales in Europe fell by 1 percent, and in China, they dropped by a big 12 percent.

Switching to Electric Cars Is Tough

Another challenge for Volkswagen is the global shift toward electric cars. The car industry is under a lot of pressure to go green and reduce pollution. But switching from gasoline and diesel engines to electric motors is expensive and difficult. To stay competitive, Volkswagen has to invest a lot in new technology. This adds more financial strain on the company, which is already struggling with lower sales and profits.

Arno Antlitz, the chief financial officer of Volkswagen, summed up the situation in a call with investors, saying, “We need urgent action in this unpredictable environment full of intense competition. We’re making some tough choices, and we have to work together to get through this.” It’s clear that Volkswagen is feeling the pressure to make major changes if it wants to stay competitive in the electric car market.

The Impact on Workers and Factories

With profits down and costs up, Volkswagen is considering some drastic steps, including closing three of its German factories and even cutting salaries by 10 percent. Audi, one of Volkswagen’s brands, announced it would shut down its factory in Brussels in early 2025. These potential closures and pay cuts have created a lot of tension with labor unions in Germany.

The IG Metall union, which represents many of Volkswagen’s employees, isn’t taking this lightly. Union leaders are calling for discussions to protect jobs and prevent factory closures. Thorsten Gröger, a district manager for IG Metall in Lower Saxony, said that if Volkswagen doesn’t meet with them soon, they might need to “prepare for further actions.”

The Government Gets Involved

The situation at Volkswagen has become so serious that it’s caught the attention of the German government. Chancellor Olaf Scholz, who leads Germany, recently held an emergency meeting with leaders from Germany’s major industries, including Volkswagen. He urged Volkswagen to reconsider layoffs and to think about the impact on its workers, saying, “Bad decisions from the past shouldn’t be taken out on employees.”

The Chancellor isn’t the only one worried about Volkswagen’s problems. Leaders in the state of Lower Saxony, which owns a portion of Volkswagen, are also pushing back against any plans to close factories. Stephan Weil, the premier of Lower Saxony, and other government officials are asking Volkswagen to find a way to solve its financial issues without cutting jobs.

Criticism from the Opposition

Volkswagen’s troubles have also sparked criticism of the government’s policies. Markus Söder, the leader of the Christian Social Union and the premier of Bavaria, called the situation at Volkswagen “brutal for Germany as a car manufacturing hub.” He blamed the government’s focus on green policies, such as the European Union’s 2035 target to end the sale of new gasoline and diesel cars. The EU has also set new pollution limits for car manufacturers, which Volkswagen and others claim will cost billions in fines.

Although the European Commission says it won’t back down on its 2035 rule, there is rising pressure on politicians to reconsider or delay these policies.

A Glimmer of Hope for the German Economy

Despite Volkswagen’s troubles, Germany’s overall economic news wasn’t all bad. The German economy actually managed to grow by 0.2 percent in the third quarter, narrowly avoiding a recession. But this minor growth isn’t enough to lift the dark clouds hanging over Germany’s struggling industries. With Volkswagen facing such serious challenges, the government will continue to feel pressure to find solutions.

Looking Ahead: Can Volkswagen Bounce Back?

Volkswagen’s future remains uncertain. While the company is facing a lot of challenges, it’s clear that everyone, from labor unions to government officials, wants to see it succeed. However, bouncing back won’t be easy. The carmaker’s dependence on China, which accounts for most of its sales, has become a liability as the Chinese market slows down. And while sales are up slightly in South and North America, it’s not enough to make up for the drop in China and Europe.

Volkswagen has a long road ahead as it tries to stay competitive in an industry rapidly shifting toward electric cars. The company will need to keep investing in electric vehicle technology while also finding ways to cut costs without hurting its workers. It’s a tough balance to strike, but Volkswagen’s future in Germany, and possibly its position in the global auto market, may depend on how it handles this critical moment.