Volkswagen's Existential Crisis Risks Full-Blown Shareholder Civil War

Volkswagen is edging toward an internal confrontation that could dismantle the governing consensus that has shaped Germany’s biggest carmaker for decades.

If chief executive Oliver Blume fails to win supervisory board backing for billions of euros in cuts, management is prepared to take the restructuring directly to shareholders, according to Der Spiegel.

The move would be through an extraordinary general meeting, potentially setting investors against Lower Saxony, one of Volkswagen’s most powerful owners.

The escalation comes as the group faces what senior figures broadly regard as an existential crisis.

Profits have fallen sharply, sales in China have weakened, and Volkswagen has lost technological ground.

Management fears that without rapid action, the company could slide into sustained losses within a few years.

A Restructuring That Would Remake VW

At the center of the dispute is Blume’s “Group Target Picture,” a plan designed to cut billions in costs and reshape Volkswagen’s German operations.

Management wants to eliminate tens of thousands of jobs and eventually stop assigning new investment and production programs to plants in Zwickau, Emden, Hannover and Neckarsulm after 2030.

It also wants to separate the core VW brand into its own corporate entity.

That could reduce the reach of the Volkswagen Law, which grants Lower Saxony special shareholder rights.

Negotiations have stalled over both the scale of job cuts and the restructuring's legal implications.

Management is also said to have raised its savings target for indirect costs beyond €11 billion. The expenses include wages and salaries in administration and technical development.

Shareholders Could Be Asked to Override Resistance

If the supervisory board again refuses to approve the plan, management intends to call an extraordinary general meeting, potentially as early as late October.

The move would amount to a direct appeal to Volkswagen’s shareholders over the heads of the supervisory board.

Investors may be receptive. Volkswagen shares have lost almost 30% this year and are due to leave the Euro Stoxx 50 this month.

Under German corporate law, shareholders can in certain circumstances approve a management proposal rejected by the supervisory board with a three-quarters majority.

Gregor Bachmann, an expert in corporate and capital markets law at Humboldt University in Berlin, said such a step would represent the “maximum escalation.”

No company of Volkswagen’s size has used the mechanism to force through a restructuring plan worth billions of euros.

Lower Saxony’s Power Comes Under Pressure

The confrontation would test Lower Saxony’s unusual position inside Volkswagen.

The state controls 20% of the voting capital and can effectively block certain fundamental decisions because the Volkswagen Law requires approval of more than 80% of represented capital.

That gives Lower Saxony a de facto blocking minority on issues including some capital measures and corporate spin-offs.

Bachmann argues, however, that this protection may not apply in the same way if shareholders are voting to replace approval withheld by the supervisory board.

In that case, he says, three-quarters of votes actually cast could be sufficient.

If that interpretation holds, management could potentially push parts of the restructuring through despite opposition from Lower Saxony and IG Metall.

A Legal and Political Civil War

The legal interpretation is disputed inside Volkswagen.

Critics argue that the most important elements of the plan would still require the higher threshold under the Volkswagen Law, preserving Lower Saxony’s veto.

Legal challenges are therefore likely if management attempts to use an extraordinary shareholder vote.

That could leave Volkswagen trapped in years of litigation as it tries to execute the deepest restructuring in its history.

The wider consequence would be even more significant.

Volkswagen has long been built around a balance between shareholders, labor representatives and the state of Lower Saxony. Taking the fight directly to investors would rupture that model.

For a company with €322bn in annual revenue and more than 650,000 employees worldwide, the struggle would no longer be only about cuts.

It would become a battle over who ultimately controls Volkswagen.