Volkswagen CEO targets power shift alongside deep cuts

By Christoph Steitz

FRANKFURT, June 29 (Reuters) - Volkswagen CEO Oliver Blume's plan to cut up to 100,000 jobs and close high-cost German factories is about more than cost savings: it could also mark an attempt to challenge a corporate structure that has long held back change.

Europe's biggest automaker is weighing its largest-ever restructuring, including doubling planned job cuts and shutting four German factories, sources told Reuters, as it battles tariffs, rising costs and intensifying competition from Asia.

It is also weighing plans to carve out passenger cars and components into separate divisions, a move that could test the limits of the Volkswagen law, which entrenches the influence of labour and the company's home state of Lower Saxony, its second-largest shareholder.

The law effectively limits management's ability to close plants. But because it applies to VW AG — which controls the group's six core German factories — creating separate entities could open a path to sidestep those constraints.

Three financial and legal sources said spinning off the passenger car division — heavily exposed to tariffs, weak European demand and a price war in China — could be a step in that process.

But that would set up a direct confrontation with powerful unions and political stakeholders. The IG Metall union has already warned the carve-out plans amount to an "attack on the VW law", signalling Blume faces a fight.

With the sector in crisis, Volkswagen's shares near 16-year lows and internal tensions rising, some investors say management has little choice but to challenge the status quo.

Ulrich Hocker, president of shareholder lobby group DSW, said labour's influence was "excessive" and rooted in a bygone era. With labour and Lower Saxony together holding a majority on Volkswagen's supervisory board, the company has a history of compromises that ultimately fell short.

"At some point, everyone has to realise that a major transformation must be carried out to ensure the survival of this company," he said.

SPINNING OFF THE 'BAD BANK'

In practice, however, any spin-off would still require shareholder approval of more than 80% under the Volkswagen law, effectively giving Lower Saxony — with 20% of voting rights — a blocking stake.

"Lower Saxony would never back a vote aimed at diminishing its own power," one of the sources said.

UBS expects a compromise, warning that any restructuring will likely come with provisions and a downgrade to Volkswagen's 2026 outlook.

Olaf Lies, Lower Saxony's premier and a supervisory board member, said the state would not agree to measures to weaken the influence of workers, which he said was an "integral part of Volkswagen's success story".

He has instead suggested shifting production of China-focused models to Germany to support underused plants — an idea Blume has also floated.

Beyond governance, investors see a financial logic in simplifying Volkswagen's sprawling structure, which spans 10 brands and has drawn criticism from investors, including top shareholder Porsche SE.

The company might take a page out of Siemens' playbook in streamlining its empire to address the long-standing gap between its market value and the value analysts ascribe to its assets.

The imbalance is stark: Volkswagen's majority stakes in truck unit Traton and sports-car maker Porsche are together worth about €44 billion ($50 billion), exceeding the group's roughly €37.6 billion market value.

Citi analysts say carving out the core business could unlock value, likening the move to a "bad bank" that would isolate weaker operations and leave a leaner holding company less exposed to geopolitics and weak growth.

($1 = 0.8770 euros)

(Reporting by Christoph Steitz. Editing by Mark Potter)