Volkswagen AG is currently facing a significant challenge as its stock plummeted by 3.87 percent to 103.10 Euros, largely as a consequence of a recent legal ruling regarding compensation for its employee representatives. This comes in the wake of a decision from the Bundesarbeitsgericht, the Federal Labor Court of Germany, which mandated that Volkswagen must provide justification for any cuts made to the compensations of its Betriebsräte (works council representatives).
The case has gained traction due to a precedent set last year by the Bundesgerichtshof, the Federal Court of Justice, which ruled that corporate executives could be held liable for breach of trust if they grant excessive compensation to employee representatives. In light of this ruling, the Bundesarbeitsgericht decided that the responsibility for proving the legitimacy of compensation levels falls on Volkswagen.
This ruling is particularly crucial as it resonates with the ongoing scrutiny surrounding the compensation structures within the automotive giant. In an earlier decision, the claimant involved reported that Volkswagen had reduced his monthly compensation substantially, from nearly 7,093 Euros to 6,454 Euros, a significant cut that has drawn both attention and concern regarding fairness and compliance within the company’s compensation practices.
Amid these legal battles, the wider context of the German auto industry is equally telling. In 2024, German exports of new passenger vehicles reached approximately 3.4 million, valued at 135 billion Euros. While this marks a 2.5 percent increase in quantity compared to the previous year, the overall value fell slightly by 1.3 percent. Notably, the export of fully electric vehicles grew by almost 12 percent, totaling approximately 881,000 cars and representing a significant segment within the auto export market.
The United States remains the most significant export market for German cars, commanding a 13.1 percent share of all exports, ahead of the United Kingdom and France. This ongoing dependence on the U.S. market is becoming increasingly precarious amid potential tariff increases. Former President Donald Trump has threatened to impose a 25 percent import tariff on vehicles coming from the European Union, a decision anticipated in early April that could severely affect the profitability of manufacturers like Volkswagen, Mercedes-Benz, and BMW.
Currently, automobiles imported from the EU into the U.S. face a tariff of just 2.5 percent, while the EU reciprocates with a higher rate of 10 percent. As executives from leading automotive companies like Mercedes-Benz advocate for the complete abolition of such tariffs, the stakes are incredibly high. Mercedes' CEO, Ola Källenius, recently articulated the industry’s standpoint, stating, "Let’s reduce these tariffs to zero on both sides," emphasizing the potential for mutual benefit if barriers are lowered.
While major manufacturers such as VW, BMW, and Mercedes continue to operate large factories in the U.S. and even supply from facilities in Mexico, much of the assembly still relies heavily on parts imported from Europe. This dynamic adds to the industry’s vulnerability to trade disputes. Financial forecasts indicate that BMW could experience a substantial dip in profit margins should the U.S. increase its import duties to match EU levels.
The ongoing trade conflict between the EU and the U.S. is at a boiling point, with tariffs already implemented by Trump on steel and aluminum imports. Corresponding measures from the EU, which include retaliatory tariffs on American products like bourbon whiskey and motorcycles, have already been noted, showcasing the reciprocal nature of the current economic climate.
At present, the stock values of major German automotive companies reflect this tumultuous environment. As reported on March 20, 2025, alongside Volkswagen’s drop, Mercedes-Benz shares decreased by 2.50 percent to 58.45 Euros, while BMW saw a decline of 2.44 percent to 75.90 Euros. The decreasing trends in share prices for these companies underscore the growing apprehension among investors regarding the viability of the automotive sector as it grapples with both internal and external pressures.
As Volkswagen navigates through these complexities, the imperative for transparent governance and fair compensation practices becomes undeniably clear. The outcome of the legal obligations imposed by the courts not only impacts internal operational practices but holds significant sway over public perception and investor confidence.
With many challenges on the horizon, including potential changes to trade agreements and emerging market shifts toward electric vehicles, the future trajectory of Volkswagen and the entirety of the German auto industry hinges on how effectively they can adapt and respond both to legal mandates and market realities.
