VW warned by unions that move to scrap job security deal could cost ‘billions’

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Volkswagen has informed workers it is ripping up a three-decade job security deal, setting up Europe’s largest carmaker for a historic and potentially costly fight with unions in Germany as it seeks to restore dwindling profits.

The Wolfsburg-based company on Tuesday notified its employee representatives and the IG Metall union that previous commitments providing job protections for all workers at its German plants would end by July next year. The deal previously ran until 2029.

The unions responded by warning that the decision could cost the company “billions” and threatened strike action.

“This will be a dispute that Volkswagen would have preferred to avoid,” said local union leader Thorsten Gröger.

VW’s move highlights the mounting financial pressure on the German automaker, which is facing a painful transition to electric vehicles and sliding demand for its cars in Europe and China.

Last week, it caused alarm within union and political circles throughout Germany by saying it would consider closing plants in the country, an option that has long been considered taboo.

The company’s flagship brand in June last year announced €10bn worth of cost savings by 2026 to boost operating margin to 6.5 per cent.

But falling margins, which slumped to 2.3 per cent in the first half of this year, led management to announce last week that billions more would have to be saved, meaning job cuts and possible German plant closures. A decision to shut down a factory in Germany would be a first in the company’s 87-year history.

The decision to scrap the job pact carries big financial risk, union leaders have warned. If no alternative agreement is signed, VW could be liable for additional payments to workers as a generous collective labour agreement from the early 1990s will automatically kick in. Workers’ representatives have said it could cost the company “billions”.

“What was intended as a mechanism to save costs at the expense of employees could quickly prove to be a financial disaster [for VW],” said the IG Metall union.

Unless management acquiesced to its demand to stop plans to cut jobs and close plants it would entail “an automatic pay increase for the majority of VW employees”.

In an internal note to employees, VW, which employs roughly 300,000 staff in Germany, acknowledged the need to reach a deal with employee representatives to avoid rolling over to the collective bargaining agreement that existed before 1994 when workers agreed to work four days a week to prevent redundancies.

The note seen by the Financial Times said a failure to reach a new agreement with the union would prompt the company to “fall massively behind competition and [ . . .] lead to further strain on the efficiency program”.

Gunnar Kilian, VW’s head of human resources, said in the note that the company would try to counteract the current “uncertainty” and “create future-proof prospects for our company in a timely manner”.