Audi Faces Dual Challenges: Plummeting Profits and Job Cuts in 2024
Audi's profits are plummeting as the automotive giant faces a tumultuous 2024. The post-tax result for the Volkswagen subsidiary saw a staggering drop of 33 percent, amounting to 4.2 billion euros, solidifying two consecutive years of significant decline. This downturn reflects broader issues not only in Audi's core brand but also across the Audi Group, which encompasses prestigious names like Bentley, Lamborghini, and Ducati.
CEO Gernot Döllner addressed the bleak figures, confirming that 2024 is indeed a year of transition, stating, "Unfortunately, this has been fully confirmed. The challenges have not become any smaller." The company is grappling with a weak demand situation, particularly pronounced in China, coupled with increased supply and the lingering repercussions of price wars.
Adding to Audi's woes, the first half of the year revealed complications stemming from the shortage of parts for larger engines and considerable high provisions earmarked for the closure of the Brussels plant. The core brand's sales slump had a direct impact on overall revenue, which nosedived nearly 8 percent to 64.5 billion euros.
Somewhat surprisingly, the smaller brands within the Audi Group are performing better, providing a glimmer of hope amid the downturn. According to CFO Jürgen Rittersberger, each of these brands showcases significantly higher operating margins than the core brand Audi. Lamborghini, in particular, stands out with a remarkable margin of 27 percent, while Audi's margin languished at a mere 4.6 percent.
To counteract these declining figures, Audi aims to bolster its sales revenue and margins by 2025, though Rittersberger cautioned that the road ahead will be anything but easy. He acknowledged, "The markets remain highly competitive. Additionally, there is still reluctance to buy in China, where we anticipate only a sideways movement in sales." In anticipation of potential revival, Audi has over 20 new models set for release in 2024 and 2025.
However, the uncertainties don’t stop there. Audi also faces risks from the current tariff policies in the United States, which could lead to price increases. The company's performance lags behind other premium auto manufacturers like BMW and Mercedes-Benz, both of which have reported losses yet remain in a strong position relative to Audi. While Mercedes saw a 28 percent decline in profits, they still yielded 10.4 billion euros. BMW's profits dipped by 37 percent, landing at 7.7 billion euros, figures that Audi can only dream of at present.
In light of these financial struggles, Audi has opted for job cuts, announcing a reduction of up to 7,500 positions in Germany by 2029, albeit without operational layoffs. These cuts come hand in hand with a strategy to implement further financial restraints, including a restructured employee participation scheme temporarily reducing benefits. Audi is projecting at least one billion euros in annual savings from these measures.
As negotiations concluded, an agreement with the employee side was achieved, which not only ensures job security until the end of 2033 but also places a bonus incentive for IG Metall members. Yet, profit-sharing among employees is already feeling the effects of the financial decline. The anticipated profit-sharing payout for skilled workers is substantially lower in 2024 at 5,310 euros, starkly down from 8,840 euros the previous year, due to the overall underperformance.
In conclusion, Audi finds itself in a perilous position as it grapples with a combination of dwindling profits, competitive market pressures, and strategic job reductions. The company’s focus on new model releases may provide a temporary uplift, but the road to recovery remains steep and uncertain.
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