- Potential plant closures and layoffs could impact VW's savings rate.
Volkswagen isn't ruling out the possibility of shutting down factories and letting go of employees due to their restructuring plans for the main brand. The corporation announced that they're scrapping their employment security agreement, which had protected jobs until 2029.
In light of the situation, the Volkswagen AG board believes that the brands under them require extensive restructuring. "Even the closure of vehicle-manufacturing and component plants cannot be ruled out without immediate action," the company stated. They also mentioned that the planned job cuts via early retirement packages and layoffs aren't enough to meet the desired savings.
The company claimed that they're compelled to abandon the employment security agreement that's been in place since 1994. According to them, a restructuring based solely on demographic trends isn't enough to bring about the necessary adjustments for improved competitiveness in the short term.
Work council chairwoman Daniela Cavallo vowed strong resistance against these plans. "These plans are a threat to our jobs, locations, and collective bargaining agreements," she said in an issue of the works council newspaper "Mitbestimmen." "With this, Volkswagen itself, and thus the heart of the company, is at stake. We will fight back vigorously against this. There will be no plant closures in Volkswagen as long as I'm around!" The works council, along with the state of Lower Saxony, holds a majority on the supervisory board.
CEO Oliver Blume justified the course of action due to the worsening situation. "The European automotive industry is currently facing a very challenging and severe situation. The economic environment has deteriorated even further, with new competitors entering Europe," he said in a statement. "Moreover, Germany's competitive edge is slipping. In this scenario, we as a company must now take decisive action."
The core brand Volkswagen has been grappling with high costs for quite some time now and trails behind sister brands like Skoda, Seat, and Audi in terms of profit margin. A 2023 savings program was intended to rectify things and boost results by 10 billion euros by 2026. However, the current slump in new business has only added to the problem.
To achieve these improvements, costs now need to be reduced more than initially planned. According to "Handelsblatt," this could require an additional 4 billion euros in savings. "The headwind has grown stronger," said brand CEO Thomas Schäfer in a statement. "We therefore need to step up our efforts now and create the conditions for long-term success."
The Volkswagen AG is considering radical measures to improve competitiveness, with the manufacture of motor vehicles not being exempt. "We must consider the closure of vehicle-manufacturing and component plants," the company stated. Due to the high costs and lower profit margins compared to sister brands, Volkswagen needs to reduce costs by more than initially planned to achieve its savings goal.
