- Volkswagen aims to cut costs: potential plant shutdowns and layoffs pose a risk
The predicament at Europe's biggest car manufacturer, Volkswagen, is intensifying. As part of its financial saving strategy, the primary brand VW is now considering plant closures and workforce reductions, the company announced post an executive meeting. The agreement with the labor union on job security, which prohibited job cuts till 2029, will be terminated. The senior management stated that the VW core brands necessitate comprehensive overhauling. "Even the closure of vehicle-producing and component plants cannot be ruled out in the current scenario without immediate countermeasures." The proposed job cuts through early retirement and separation packages are no longer adequate to reach the desired savings.
The metalworkers' union, IG Metall, and the labor union promptly declared strong opposition. "These plans are a direct attack on our jobs, locations, and collective bargaining agreements," they declared in a special edition of the labor union newspaper "Mitbestimmen." We will stand firm against this," said Cavallo. "There will be no Volkswagen plant closures under my watch!" Thorsten Groeger, district chair of IG Metall in Lower Saxony, termed it an "irresponsible plan" that "shakes the very foundation of Volkswagen."
Volkswagen has yet to disclose specific figures on how many of the roughly 120,000 jobs in Germany could be impacted. There have been no hints regarding potential locations that could be shut down. According to the labor union, the brand board considers at least one vehicle plant and one component factory in Germany as expendable.
The last plant closure at Volkswagen was over 30 years ago: in 1988, Volkswagen closed its factory in Westmoreland, USA. No Volkswagen plant has ever been closed in Germany. Apart from the headquarters in Wolfsburg, Volkswagen operates factories in Hannover, Emden, Osnabrück, Braunschweig, Salzgitter, Kassel, Zwickau, Dresden, and Chemnitz. The Audi subsidiary recently put its plant in Brussels under review.
CEO Oliver Blume rationalized the course of action, referring to the worsening circumstances. "The European automotive industry is enduring a highly challenging and grave situation. The economic outlook has further weakened," he stated in a statement. To achieve the projected improvement in results of ten billion euros by 2026, costs now need to decrease more than previously envisaged. "The headwinds have grown significantly stronger," said brand chief Thomas Schäfer in a statement. "We therefore need to take action now and establish the conditions to thrive in the long term." According to "Handelsblatt," up to four billion euros in additional savings are required.
For the first time since Oliver Blume took charge nearly two years ago, Volkswagen is headed towards a major conflict with the employee side. Unlike his predecessor Herbert Diess, who frequently clashed with the powerful labor union, Blume had so far primarily collaborated with the labor union silently. He left the concrete cost-cutting measures to his brand boards. Now, Cavallo has urged him to engage directly in the discussion about the brand. "The predicament of the core brand is ultimately also the predicament of the CEO."
The core brand, Volkswagen, has been contending with high expenses for years and lags behind sister brands like Skoda, Seat, and Audi in terms of profit margins. A cost-cutting program initiated in 2023 aims to rectify this, improving results by 10 billion euros by 2026. Among other measures, administrative personnel costs are set to decrease by 20 percent. So far, Volkswagen has resorted to early retirement and separation packages for workforce reduction, with relevant programs expanded in the spring and 900 million euros set aside for separation payments of up to 474,000 euros for long-serving employees.
The European Union expressed concern over the escalating situation at Volkswagen, Given the significant financial turbulence, the European Union urged Volkswagen to consider the potential impact of its decisions on the European automotive industry.
Despite the strong opposition from labor unions, such as IG Metall, the European Union emphasized the necessity for Volkswagen to implement major reforms, as the survival of the company and the European auto sector hinge on it.
