VW considers closing factories in Germany and cutting jobs

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Volkswagen is considering shutting factories in Germany for the first time in its 87-year history, as chief executive Oliver Blume warned that the European automotive industry was in a “very . . . serious situation”.

The move comes after a savings programme launched last year has fallen short of several billions of euros, as the company has only been able to cut overheads by offering employees early retirement and voluntary redundancy packages due to agreements with its powerful works council.

“The economic environment became even tougher, and new competitors are entering the European market. In this environment, we as a company must now act decisively,” Blume said.

The company said it planned to walk back on its promise not to cut jobs in Germany until 2029, in a move that would put it on a collision course with the works council.

Lower than expected demand for electric vehicles in Europe has hit the region’s carmakers, including VW, which is also struggling with a shrinking market share in China, its most profitable market.

The company’s flagship brand last June announced it wanted to cut €10bn in costs by 2026, as it set a target for operating targets to reach 6.5 per cent by the same year. At the first half of 2024, operating margins at the VW brand had slid to 2.3 per cent.

VW on Monday said that “restructuring based solely on demographic developments” — meaning its reliance on not replacing retiring workers — had been “insufficient to achieve the urgently needed structural adjustments for greater competitiveness in the short term”.

VW employs about 300,000 people in Germany — just under half of its global total. Maintaining jobs is a top priority for the German state of Lower Saxony, which owns 20 per cent of the company, and it has often sided with the company’s works council, which holds half the seats on VW’s supervisory board.

The prime minister of Lower Saxony, Stephan Weil, on Monday said it was “undisputed that VW needs to take action”, but added that plant closures was only one option available to the company.

“We expect that [plant closures] will simply not happen,” he stressed, adding that the state would “pay particular attention to this”.

Daniela Cavallo, chair of VW’s works council — which under German rules represents workers’ interests on a supervisory board level — on Monday issued a note to employees, warning that management was considering shutting German plants, as VW’s flagship brand risked slipping into the red.

“As a result, the executive board is now questioning German plants, the VW in-house collective wage agreements and the job security programme running until the end of 2029,” said Cavallo, whose clash with former VW chief executive Herbert Diess contributed to his ousting in 2022.

VW said that its “extremely tense” financial situation meant that “even plant closures at vehicle production and component sites can no longer be ruled out”, adding that it would begin negotiations with labour representatives.

Cavallo, however, indicated that the VW executive plans would face fierce resistance. “With me, there will be no VW plant closures!” she told employees.

The brewing battle over restructuring at Europe’s largest carmaker comes as it faces lower demand both in its home market and China, and also new competitors entering the European market. Several Chinese electric-vehicle makers such as BYD have made plans to enter Europe, while VW and other legacy brands race to develop cheaper EVs.

Analysts have long urged Volkswagen to carry out the job cuts to make the cost savings work at a time when heavy investments are needed to make the transition to EVs.

“It’s a major cultural shift taking place at Volkswagen,” said Matthias Schmidt, an independent auto analyst. “I think the unions are probably shown the reality . . . and they are likely to be more accommodative this time.”

Despite the opposition signalled by Cavallo, Daniel Schwarz, an automotive analyst at Stifel, also noted the change in her language, which acknowledged the scale of the problems faced by Volkswagen brands and avoided direct criticism of Blume. “The reaction from the unions has been quite encouraging,” he added.