Volkswagen AG Chief Executive Officer Oliver Blume suffered a significant setback Thursday when 12 of 19 supervisory board members rejected his proposed overhaul of the German automaker. The plan, which included additional job cuts, potential plant closures, and a possible carve-out of the core VW brand from the broader group that owns Audi and controls Porsche, failed to secure initial backing amid labor union opposition.

The rejection underscores the entrenched power of worker representatives on VW's board, where labor holds half the seats under Germany's co-determination system. Blume, who took the helm in 2022, has struggled to accelerate cost reductions as the company navigates the expensive transition to electric vehicles while facing weakening demand in China and Europe.

Investors have grown impatient with VW's sluggish margin improvement compared to rivals like Toyota and Hyundai. The stock trades at a persistent discount to peers, reflecting skepticism about management's ability to execute structural reforms. Thursday's vote suggests any radical restructuring — including a brand separation that could unlock value — faces steep political hurdles.

Without board support, Blume's options narrow to incremental cost cuts that may prove insufficient to close the profitability gap. The stalemate risks prolonging VW's valuation discount and could trigger shareholder activism if earnings disappoint in coming quarters.