In a significant shift from its 87-year history, Volkswagen is contemplating the closure of factories in Germany and potential job cuts as it faces a challenging economic environment. This consideration arises after the company’s savings program, initiated last year, fell short of its targets by several billion euros. Chief Executive Oliver Blume has expressed concerns about the “very serious situation” facing the European automotive industry.
Volkswagen’s flagship brand aimed to reduce costs by €10 billion by 2026, but its operating margins have plummeted to just 2.3 percent in the first half of 2024, significantly below the 6.5 percent target. The current strategy, which relies on early retirement and voluntary redundancy packages, has not been enough to make the necessary structural adjustments for enhanced competitiveness.
The company is now reconsidering its previous commitment to not cut jobs in Germany until 2029, which could lead to tensions with its influential works council. Volkswagen employs around 300,000 people in Germany, nearly half of its global workforce. The state of Lower Saxony, which holds a 20 percent stake in the company, has historically prioritized job preservation. Nevertheless, Prime Minister Stephan Weil has acknowledged that while action is needed, plant closures are just one of the options being considered.
Daniela Cavallo, chair of VW’s works council, has warned employees about the possibility of plant closures, asserting her commitment to opposing such measures with the statement, “With me, there will be no VW plant closures!” This impending conflict over restructuring occurs amid declining demand in both Germany and China, alongside the emergence of new competitors in the European market, particularly Chinese electric vehicle manufacturers like BYD.
As Volkswagen and other legacy brands strive to produce more affordable electric vehicles, analysts have long recommended job cuts to achieve necessary cost savings, especially given the substantial investments needed for the transition to electric mobility. The current situation may indicate a significant cultural shift within the company, possibly leading to a more flexible approach from unions. As Volkswagen navigates this challenging period, the results of its restructuring efforts could have profound implications for the European automotive industry and the future of manufacturing in Germany.
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