Volkswagen plans to close at least 3 German plants and cut thousands of jobs

Volkswagen faces intense competition in China, slowing sales in other major markets and the need to navigate the costly transition to electric vehicles. Photo / Getty Images

Volkswagen plans to shut at least three German plants, axe tens of thousands of jobs and slash pay by 10%, the company’s top employee representative said on Monday.

The restructuring would mark the first closure of domestic plants in the company’s 87-year history and set up a battle with powerful unions and politicians in Germany, where VW has 300,000 employees.

VW’s management has warned radical measures are needed as Europe’s largest carmaker faces intense competition in China, slowing sales in other major markets and the need to navigate the costly transition to electric vehicles.

It recently issued its second profit warning in three months.

Daniela Cavallo, the head of VW’s works council, on Monday told staff at the company’s main Wolfsburg plant that executives had two days to reverse its plans, as she hinted at future strikes.

She said chief executive Oliver Blume was “playing with the massive risk that ... we will break off the talks and do what a workforce has to do when it fears for its existence”.

The works council represents VW employees and holds half the seats on the supervisory board.

The plants to be shut would come from 10 that mainly supplied the carmaker’s core VW brand, a works council spokesman saidys.

VW first signalled in September it was considering shutting German plants, but analysts remain sceptical given the strong opposition from politicians and the works council.

In a statement on Monday, Thomas Schafer, the head of the company’s VW brand, said some of its German plants were twice as costly to run as those of rival carmakers.

“We are currently earning too little money from our cars,” 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.”

VW declined to comment on the possible plant closures on Monday, referring to a previous statement that they cannot be ruled out.

Thorsten Groger, chief negotiator at IG Metall, Europe’s largest union, warned the cost-cutting would provoke “resistance of a kind it could never imagine”.

Politicians pointed to VW’s management for decisions that had contributed to the company’s crisis.

A spokesperson for the German government said Chancellor Olaf Scholz had been clear that “possible wrong management decisions in the past must not be to the detriment of employees”.

The parliamentary group for Scholz’s Social Democratic party echoed that view, with Verena Hubertz, SPD’s spokeswoman on economic policy, saying: “The workers shouldn’t have to take the rap if management makes the wrong decisions.”

She said Scholz would hold “confidential talks with business and the unions” on Tuesday over safeguarding jobs and “ensuring that future investments are made in Germany”.

The German state of Lower Saxony, a significant shareholder with control of 20% of the voting rights, has previously said its priority is maintaining jobs and has often sided with the works council.

Matthias Schmidt, an independent car analyst, predicted that following negotiations with the works council and the unions in coming weeks, VW would probably end up closing two plants. “They are using some type of political manoeuvring to get a deal they want,” he said.

Like German rivals Mercedes-Benz and BMW, VW faces falling profits in China as consumers cut spending and local brands such as BYD take market share.

The German group, which reports its quarterly results on Wednesday, now expects an operating profit margin of about 5.6% in 2024, down from its earlier forecast of 6.5-7%.

In a sign of the deepening pressures in the Chinese market, Porsche, which is majority-owned by VW, on Friday reported a 41% plunge in quarterly profits.

VW shares closed down 1%.

Written by: Patricia Nilsson and Kana Inagaki. Additional reporting by Guy Chazan and Laura Pitel in Berlin.

© Financial Times