Volkswagen is considering closing its factories in Germany.
The Wolfsburg-based manufacturer informed the labor committee representing employees on Monday that they are contemplating shutting down "at least one major car manufacturing plant and one parts plant" in Germany to cut costs worth billions of euros.
At the same time, Volkswagen stated that in order to prepare for the future, they are also seeking to end the employment protection agreement that has been in place with the labor union since 1994. This agreement commits Volkswagen to a layoff ban until 2029. According to Volkswagen's latest financial report, the company employs nearly 683,000 people worldwide, with about 295,000 employees in Germany.
On March 14, 2024, local time, Volkswagen's headquarters in Wolfsburg, Germany.
It is reported that if the factory closures go ahead, it would mark the first time in Volkswagen's 87-year history that factories in Germany would be shut down, effectively abandoning the commitment not to lay off workers before 2029. Volkswagen CEO Oliver Blume stated that "the European automotive industry is facing a very severe and serious situation." He pointed out that the economic environment has worsened and frankly acknowledged the competitive pressures Volkswagen faces in the European market. "Particularly in Germany as a manufacturing base, we are increasingly falling behind in competitiveness. In this environment, the Volkswagen Group as an automotive company must take decisive action."
Volkswagen's labor committee chair, Daniela Cavallo, has stated that they will strongly oppose the proposed factory closures. The power of the unions within the Volkswagen Group is significant; of the 19 seats on the supervisory board, 9 are occupied by union representatives, nearly half. Additionally, the government of Lower Saxony, which holds a 20% stake in the company, typically aligns with the union organizations.
Former CEO Herbert Diess was ousted due to union discontent over massive layoffs. After Diess's departure, current CEO Oliver Blume took over his position. During Diess's tenure, Volkswagen announced layoffs of 30,000 globally, with 23,000 in Germany, a move that helped save 3.7 billion euros and accelerated the shift towards electrification.
Now, as Blume's board proposes factory closures, there are concerns about whether he will become the next Diess.
In last month's earnings call, Blume mentioned plans to cut factory, supply chain, and labor costs. "The issue now is cost, cost, and cost," Blume said.
Since the end of last year, Volkswagen has implemented a cost-cutting plan of 10 billion euros. However, the company indicated in their latest half-year report that they would be unable to meet the goal of saving 10 billion euros by 2026.
Financial reports show that in the first half of this year, Volkswagen Group's operating profit fell by 11.4% to 10.1 billion euros. Particularly, the core Volkswagen brand aimed at the mass market saw its operating profit drop from 1.64 billion euros in the same period last year to 966 million euros.
The Chinese market remains its largest single market globally. In the first half of this year, Volkswagen's deliveries in China decreased by 7% compared to the same period in 2023.
