In a bid to save €5.9 billion and raise their operating margin to 6%, VW will cut 5,000-7,000 jobs by 2023. These job cuts will mostly be a result of offering early retirement to longtime employees, rather than layoffs. The comments on this change in strategy were made at VW’s annual media conference in Wolfsburg.
As part of this announcement, VW laid out a plan for its future. The company will boost their software engineering department significantly in the coming years, hiring 2,000 new employees in software and electronics.
VW did not offer more specifics about what departments the job cuts would come from, just that they would mostly be a result of “automation of routine tasks.”
Currently, VW claims that 90% of their engineering is hardware-related, but it wants to shift this to around 50% by 2030.
The change in strategy is due to the expectation that cars will continue to move to a more connected, autonomous future. In the past, automakers have not spent a huge amount of effort on software development, with most in-car systems having a somewhat…ancient feel to them.
Apple CarPlay and Android Auto have given automakers an easy out, allowing them to use a standardized system for in-car entertainment rather than having to focus on their own software development efforts.
But with autonomous and connected cars coming, software is going to consist of a lot more than infotainment systems, and it behooves automakers to beef up their efforts in this regard.
I guess it’s been a pretty crazy week for layoffs in the auto industry.
Much like Tesla’s several conflicting announcements this week about job cuts, VW’s announcement here is a little strange as well. Just yesterday they claimed they plan to offer 20 more electric models (for a total of 70) and sell 22 million electric vehicles over the next 10 years. So they’re certainly gearing up for some big expansion into a new section of the industry, which doesn’t seem to mesh well with significant layoffs.
In addition to the layoff news, they also announced a big hiring spree. So despite the savings from cutting 7,000 jobs (which is still only ~2% of their workforce), they’re going to be spending part of that trying to recruit people in a rather highly paid field. Maybe the savings will be more modest than they think.
But this is still a necessary and welcome change. Anyone who has used an in-car infotainment system knows that they are pretty much all desperately bad. CarPlay and Android Auto are pretty good, but they can feel a little tacked-on, since they don’t have any custom touches for individual vehicles (for example, ways to check your energy consumption on an EV). And all of it pales in comparison to Tesla’s infotainment system. In our Model 3 review, I attributed this to other automakers using “the best software engineers in Detroit, not Silicon Valley.” Or Wolfsburg in this case, I suppose.
The point being, the auto industry is not where the best software engineers go. They go to Silicon Valley to work on exciting startups, to get their exciting ideas iterated upon quickly and put into the hands of customers who want the latest technology. So far, automakers have not been able to provide anything like this. Their cars can’t update over the internet, they have slow tacked-on displays with little information confusingly arranged.
Those problems need to be fixed, along with building a whole new software suite to copy and improve upon the human brain’s ability to drive a car. That will take some work, and 10% of an engineering department isn’t going to cut it.
So VW’s move to focus on software is a big shift and an important one.
And of course, these are all big, long-term plans. Nobody’s getting fired right now. In fact, VW doesn’t even plan to lay anyone off, but instead to offer early retirements, which seems like a much more sensitive way to deal with your long-time employees than, say, telling them you’re closing all their stores (and then, thankfully, changing your mind).