Volkswagen Plans to Close Three Factories in Germany, Cut Tens of Thousands of Jobs
In a move aimed at implementing deeper-than-expected reform measures, Volkswagen, the largest car manufacturer in Europe, is set to close at least three factories in Germany, leading to the layoff of thousands of employees and a reduction in the overall scale of its remaining facilities in the country.
The automaker has been in negotiations with labor unions for several weeks to discuss restructuring its operations and reducing costs, with considerations for the first time of shutting down factories in Germany.
On Monday, the chairman of the Volkswagen Works Council, Daniela Cavallo, addressed hundreds of employees at the company’s largest plant in Wolfsburg, stating that the management is taking the situation seriously, emphasizing that this is not a tense moment in collective bargaining discussions.
“This marks the beginning of the sale plan for Germany’s largest industrial group,” Cavallo added, revealing that the plan includes a 10% cut in workers’ salaries and a freeze on pay increases for the following years.
Other measures include the removal of bonus payments outlined in collective bargaining agreements, resulting in an overall reduction of 18% in salaries for some employees, while some jobs will be outsourced to external suppliers or transferred abroad.
Cavallo did not specify which factories will be affected by the closures, nor did she indicate how many of Volkswagen Group’s approximately 300,000 employees in Germany might face layoffs.
The German automotive giant aims to achieve over 10 billion euros (around 10.8 billion US dollars) in sustainable profit improvement by the end of 2024. Analysts from Stifel, a brokerage and investment bank providing comprehensive services, stated in a report to clients that the plan unveiled on Monday could lead to a cost reduction of 4 billion euros. “As we understand it, this is the amount required to achieve the initial 10 billion euros performance target.”
A spokesperson for the German government acknowledged Volkswagen’s challenges, stating that the government is in close dialogue with the company and workers’ representatives. “The Chancellor’s position is clear, that any past mismanagement decisions should not harm the interests of the employees,” the spokesperson said during a routine briefing. “The current goal is to maintain and safeguard employment.”
Against the backdrop of intensified competition and continued weak consumer demand in the Chinese market, management faces significant pressure to reduce costs and maintain competitiveness. On October 11th, Volkswagen, along with its subsidiaries Porsche, Mercedes-Benz, and BMW, issued warnings regarding sales or profitability.
Mercedes-Benz vowed to strengthen cost-cutting measures following profit contraction, while Porsche, under Volkswagen’s ownership, announced plans to reduce its dealership network in China in response to softening demand in the automotive market there, along with cost reductions of several billion euros.
Volkswagen stated that the company is at a crucial juncture in its corporate history, with the primary task being to ensure its future by finding ways to sustain investments in products and technologies.
Cavallo emphasized that there is consensus between workers and the board at Volkswagen on the nature of the issues faced by the company and its many European counterparts, including the slower-than-expected transition to electric vehicles and the fierce competition spurred by Chinese car manufacturers entering the European market.
“While our analyses of the problems are not far apart, our solutions are miles apart,” he said.
The once flourishing presence of Volkswagen in the Chinese market has waned, particularly affecting the demand for the Skoda brand under Volkswagen. According to Bloomberg’s report last month, Volkswagen’s factories in China are also in jeopardy and may be facing imminent closure.
The next collective bargaining meeting between Volkswagen and workers’ representatives is scheduled for October 30th.
(This article references reports from Reuters and The Wall Street Journal)