Virtually every automaker on the planet has begun to show their desire to change with the times by collectively revising their business strategies. The new popularity means lower volumes, higher margins and electric vehicles with the ability to push connected services allowing manufacturers to charge you piecemeal for just about every feature imaginable.

While the Volkswagen Group has been at the forefront of these trends since the 2015 Dieselgate scandal helped force its hand, it has often suggested that the switch to electric vehicles would be a boon for low-income families. . It wasn’t the only automaker to make such promises, nor the first to break them after deciding there might be more money to be made with higher-end vehicles. VW has decided that its ideal strategy is to phase out internal combustion vehicles by 60% over the next eight years and focus on higher-margin products with superior profitability.

It’s more than a little ironic for a company that sprung up to make low-cost automobiles designed to increase German vehicle ownership before World War II and whose name translates directly to “car of the people”. But it’s been 85 years since its founding and most would probably say that even VW’s early days presented a severe case of moral ambiguity. It is not a question here of isolating the Volkswagen group. Many companies (including other automakers) have been accused of similarly grotesque behavior, then as now.

There’s often an incredible difference between what a company says and what it ends up doing, especially if everyone else seems to be doing it too and the smell of money is in the air. VW indeed maintains its commitment to electric cars, the leadership just hopes that it will be accompanied by trucks full of money. In a recent interview with the FinancialTimesVolkswagen’s CFO explained how this could be accomplished.

From FT:

“The key objective is not growth,” said [CFO Arno Antlitz] in a reversal of the stance taken by former VW executives.

“We are [more focused] quality and margins, rather than volume and market share. VW, he said, would reduce its range of petrol and diesel cars – which includes at least 100 models from several brands – by 60% in Europe over the next eight years.

VW’s new strategy signals sweeping changes to the wider auto industry, which for decades has tried to boost profits by selling more cars every year, even if it required steep discounts.

the FinancialTimes is right to believe that this is an industry-wide change in tactics. Automakers want to see a high market valuation, which they seem to have decided collectively based on how quickly they can copy brands like Tesla. But they’ve also learned that they can still generate healthy profits in turbulent times by reducing overhead and charging more when production drops. In the wake of the pandemic, many businesses have operated exceptionally lean. They now realize that this could become an effective long-term strategy, provided they are not looking for volume – and hardly anyone is when global supply chains are in such poor shape and consumers have shown a curious desire to be ripped off.

It’s also a much cheaper solution than investing in facilities that would see manufacturers building more components themselves. Although the money spent on developing electric vehicles and “mobility solutions” has already taken a toll on the finances of some companies. Despite government pressure to boost EV sales ahead of planned ICE bans in Europe, automakers are still taking a big risk with electric cars.

Adoption rates may improve within the EU, but many studies have shown that a strong majority of North American drivers don’t care. Even places like Asia and Europe have shown that there is a strong coalition of motorists who feel the same way. This is forcing automakers to reconsider how they handle individual markets in terms of products, which is exceptionally difficult when you have to plan years in advance.

It is also difficult to say whether the Volkswagen Group’s strategy is the right one or not. My own bias makes me incredibly skeptical that pure battery electric vehicles will ever hit the market when hybrids exist. But I’m even more concerned that the entire industry is suddenly deciding to embrace lower volumes and higher margins after a decade of already doing so. The average number of vehicle transactions is at an all-time high, and inflation is just the latest contributing factor. Before that, we’ve seen a dozen manufacturers choose to eliminate some of their more affordable models in an effort to pursue higher margins. Now it looks like we’re getting a second helping of that during a time of economic hardship for all but the highest earners in the world.

Because as often as car manufacturers bring up the concept of “sustainability”, this plan seems rather short-sighted. Anyone who goes upmarket will eventually leave a big opening for any brand still selling affordable cars. Assuming regulations don’t require it to play the same game as everyone else, this could result in a handful of nameplates occupying certain segments without much competition. Chinese automakers have already made inroads in Europe by undermining traditional automakers, which lends credence to the theory. But we’ve seen this happen before with South Korean and Japanese brands bursting into Western markets.

Although one imagines perpetual growth isn’t entirely sustainable either and former VW CEO Martin Winterkorn had pledged to make the automaker the biggest automaker by volume before resign following the Dieselgate fiasco.

The rest of VW’s eight-year plan is much harder to fault, especially its focus on improving quality. After several stalled product launches, some of Volkswagen’s latest vehicles have run into problems. For example, the Golf Mark 8 was repeatedly delayed due to software issues, then suffered continuous recalls in Europe for digital gremlins that it still can’t seem to fix years later. Some of the company’s ID-branded electric vehicles have experienced similar issues, which he tried to fix with live updates. While OTAs are neat, many people aren’t interested in connected vehicles and just want to see cars leave the factory in a finished state.

Another aspect of Volkswagen’s plan that has been largely ignored is the decision to move production out of Europe to the United States and China, with the latter nation taking priority. Framed as a direct consequence of the conflict in Ukraine, CEO Herbert Diess also suggested that the global market will be volatile until at least 2026. This is somewhat curious since the company still sells more vehicles in Europe than anywhere else. But he has also clashed with his union over possible layoffs resulting from the switch to electric vehicles and believes the EU will have some of the highest material and production costs in the future.

[Image: Volkswagen Group; nrqemi/Shutterstock]

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