VW prepares contingency plans as US tariff threat grows

Volkswagen's passenger cars brand is working on backup plans in response to US tariffs, its executives said on Thursday. They ruled out a last-minute dash to move vehicles over the Mexican border.

VW has a major plant in Puebla, Mexico, which produces about two-thirds of the cars it sells in the US.

It was granted a one-month reprieve from the 25% tariffs imposed by US President Donald Trump on car imports from Mexico earlier this month because it complied with the US-Mexico-Canada Agreement (USMCA) rules of origin.

Increasing production at the brand's plant in Chattanooga in the US would need “a bit more time”, brand CEO Thomas Schaefer said.

“For now, we are watching the situation and doing backup plans for long-term solutions,” he added, describing a short-term shift of models from Mexico to its US plant as “not realistic”.

Brand CFO David Powels also said VW had not moved any cars across the border in anticipation of tariffs.

Cost cuts begin

At an annual results news conference Volkswagen also gave an update on progress on a cost-cutting drive begun last year to boost margins to 6.5% in 2029 from 2.9% now, as it seeks to weather competition from cheaper Asian rivals.

The brand has cut headcount by 4,200, with 40% of those jobs in production and 35% in administration, Powels said. It also eliminated some night shifts to bring down factory costs.

“2024 was all about fixing the basics,” Schaefer added.

VW Passenger Cars, Skoda, SEAT/CUPRA and Commercial Vehicles, reported a collective 4.3% drop in their operating results for 2024 as the carmaker undergoes a restructuring.

The passenger cars brand's operating result fell by more than a quarter to €2.59bn (R51.7bn).

The cost of new models, the upfront costs of reducing personnel in administration and purchase incentives to boost EV sales all dented profitability, the carmaker said.

The Volkswagen Group reported earlier this week that its operating margin, at 5.9% in 2024, would at best increase slightly this year given trade tensions and high costs.