Is Volkswagen’s crown starting to slip?

While it remains Europe's biggest and richest car-maker and is neck-and-neck in the global sales race with those two other automotive titans, General Motors and Toyota, Volkswagen now finds itself in the unfamiliar position of having to hold back somewhat.

The Wolfsburg-based car giant has hitherto been staggeringly ambitious, swallowing up other car brands, from Bentley to Skoda to Porsche and beyond, and making everything from the world's most economical car (the teardrop-shaped XL1) and its most profligate (the Bugatti Veyron). Now VW has stumbled slightly and is having to rein in its ambitions in order to make significant cost-cuts of €5 billion.

Why is Europe’s richest car-maker having to trim costs? Simply because it’s not making enough money from the core Volkswagen brand.

An unhealthily large proportion of VW's current profits are being made by its high-end subsidiaries Audi and Porsche. It's an unsustainable business case for those brands to prop up the whole empire and the Volkswagen brand itself is struggling to achieve substantial profit margins.

A lot of the problem is being blamed on the introduction of the hugely complex MQB multi-model platform. Essentially a set of components which can be shrunk down to make a Polo or scaled up to make a Passat (or even larger cars...) MQB has been the envy of the automotive world for its flexibility, but integrating it into production has apparently cost VW dear. It has caused massive overtime and delay costs, especially on the key Golf model range and caused VW CEO Martin Winterkorn last week to call for the €5 billion cost-cut.

Predictably that caused ructions with VW’s unions, whose ire was raised sufficiently to cause VW to terminate its relationship with management consultants McKinsey, who had been key in recommending the cost-cutting figure. Now the stage is set for a showdown between Winterkorn and the unions.

VW will end this year at or near the pinnacle of the automotive world, cost-cuts or no cost-cuts, but the German behemoth is suddenly finding out that it is indeed tough at the top.