I am not entirely sure if Germans count umlauts as distinct characters or modified versions of the base character. And maybe it is not so important; they still do deserve their own code points.
Note BTW that in e.g. Swedish and German alphabets, there are some overlapping non-ASCII characters (ä, ö) and some that are distinct to each language (å, ü). It is important that the Swedish ä and German ä are rendered to the same code point and same representation in files; this way I can use a computer localised for Swedish and type German text. Only when I need to type ü I need to compose it from ¨ and u, while ä and ö are right on the keyboard.
The German alphabetical order supports the idea that umlauts are not so distinct from their bases: it is
AÄBCDEFGHIJKLMNOÖPQRSßTUÜVWXYZ
while the Swedish/Finnish one is
ABCDEFGHIJKLMNOPQRSTUVWXYZÅÄÖ
This has the obvious impacts on sorting order.
BTW, traditionally Swedish/Finnish did not distinguish between V and W in sorting, thus a correct sorting order would be
Vasa
Westerlund
Vinberg
Vårdö
- the W drops right in the middle, it's just an older way to write V. And Vå... is at the end of section V, while Va... is at the start.