Volkswagen AG is planning to shut down at least three factories in Germany, lay off thousands of workers, and implement a 10% pay cut as part of a sweeping overhaul aimed at addressing mounting financial pressures. The automaker is grappling with weak sales, increased competition from Chinese electric vehicle manufacturers, and rising costs for energy, materials, and labor.
Daniela Cavallo, the head of Volkswagen's works council, informed employees at the company's Wolfsburg headquarters about the impending closures. "The board wants to close at least three factories in Germany," she said. "All German VW plants are affected by these plans. None is safe."
The factories targeted for closure have not been officially confirmed, but the plant in Osnabrück, which recently lost a major Porsche contract, is likely among them. The closures and layoffs could affect tens of thousands of employees, with the company considering shutting down entire divisions or relocating them overseas. Volkswagen employs over 120,000 people in Germany, about half of whom are based in Wolfsburg.
Thomas Schäfer, CEO of the Volkswagen brand, highlighted the urgency of the situation. "We are not earning enough money with our cars currently," he said. "At the same time, our costs for energy, materials, and personnel have continued to rise. This calculation cannot work in the long term."
Mr. Schäfer emphasized that Volkswagen's German factories are significantly less productive compared to competitors. "Our factory costs are currently 25-50% higher than we had planned," he noted. "Individual German plants are twice as expensive as the competition."
The German government acknowledged Volkswagen's difficulties. A government spokesperson stated, "It is well known that Volkswagen is in a difficult situation. The Chancellor's position on this is clear, namely that possible wrong management decisions from the past must not be at the expense of employees. It is now a matter of preserving and securing jobs."
The company's challenges are compounded by a shrinking European automobile market, which has contracted by two million vehicles since 2020. Additionally, Volkswagen faces stiff competition in the EV sector from Chinese manufacturers and stricter regulatory environments. "We have to get to the root of the problem: we are not productive enough at our German sites," Mr. Schäfer said.
Volkswagen's head of human resources, Gunnar Kilian, confirmed that management has been in discussions with labor representatives since mid-2023. "The fact is, the situation is serious, and the responsibility of the negotiating partners is enormous," Mr. Kilian said. "Without comprehensive measures to get competitive again, we won't be able to afford to make these significant investments in the future."
Analysts suggest that the proposed cuts are necessary but could lead to labor unrest. Daniel Schwarz, an analyst at Stifel, remarked, "The plans go far beyond market expectations. I believe this reflects a unique combination of unfavorable factors: competition in China, softening of demand in Europe, especially for battery electric vehicles, stricter regulation."
Mr. Schwarz predicted potential strikes, noting, "One side asks for a 7% wage increase, the other side offers a 10% wage cut plus factory closures. It will not be easy to find a compromise."
Volkswagen's situation is further complicated by its previous commitments to job security. The company had announced in September that it was considering the closure of factories in Germany for the first time in its history and aims to abolish a 30-year-old employment protection agreement as part of an effort to save about €10 billion.
Moritz Kronenberger, a portfolio manager at Union Investment, which holds shares in Volkswagen, commented on the developments: "The tougher planned cost-cutting measures by the Volkswagen Board of Directors illustrate the challenges the group faces in the medium term. Due to the lack of volume growth in the automotive industry, the emerging competition from China, and the disadvantages in Germany as a production location, the measures are clearly unavoidable."
The works council and unions are expected to resist the proposed measures. Ms. Cavallo expressed concern over the widespread impact, stating, "All German VW plants are affected by these plans. None is safe."
As Volkswagen navigates these challenges, the focus remains on finding a sustainable path forward. Mr. Kilian emphasized the need for a collaborative approach, saying, "We must quickly find a joint and sustainable solution for the future of our company."
