Volkswagen will close three German plants and eliminate thousands of jobs

Volkswagen will close at least three German factories, eliminate tens thousands of jobs, and cut pay by 10%, said the top employee representative of the company on Monday.

The restructuring will be the first time in the 87 years of the company that it has closed domestic plants. It is also likely to set off a fight with the powerful unions in Germany where Volkswagen employs 300,000.

VW’s management warned that drastic measures were needed to combat the intense competition in China and slow sales on other major markets. They also said they would need to manage the expensive transition to electric cars. Recently, it issued its second profit warningin three months.

Daniela Cavallo is the head of VW’s work council. She told the staff at Wolfsburg’s main plant on Monday that the executives have two days to change their plans. She also hinted at possible future strikes.

She said that Oliver Blume, the chief executive officer of Oliver Blume’s company, “played with the massive risks that. . . We will stop the talks, and do what any workforce must do when they fear for their existence.”

The VW works council is composed of all VW employees, and it holds half of the supervisory board seats.

According to a representative of the VW works council, the plants that will be closed are 10 which primarily supply the core VW brand.

VW announced in September it would be considering closing German plants. Analysts have been sceptical due to the strong opposition of politicians and works council.

Thomas Schafer said in a Monday statement that some of VW’s German plants are twice as expensive to operate than rival automakers.

He said, “We earn too little money right now from our cars.” “At exactly the same time our energy, material and personnel costs have been rising.” This calculation will not work over the long-term.

VW refused to comment on possible plant closings on Monday. VW referred to an earlier statement that said they could not be ruled out.

Thorsten Groger warned that cost-cutting measures would lead to “resistance on a scale it never imagined”.

VW’s management was blamed by politicians for the current crisis of the company. A spokesperson from the German government stated that Chancellor Olaf Scholz was clear in his statement that “possible bad management decisions made in the past cannot be at the expense of employees”.

Verena Hubertz said, SPD’s economic policy spokesperson, that workers should not be held responsible for management’s mistakes.

Scholz will hold confidential talks on Tuesday with the business community and unions to “ensure that future investments in Germany are made”.

Lower Saxony in Germany, a major shareholder, with 20 percent of the voting rights under its control, has said that it is a priority to maintain jobs, and has frequently sided with the work council.

Matthias Schmidt, a independent auto analyst, predicts that after negotiations with the unions and works council in the coming weeks, VW will probably close two plants. He added that “they are using some kind of political maneuvering to get the deal they want.”

VW, like its German rivals Mercedes-Benz BMW and Volkswagen, faces declining profits in China due to the reduction of consumer spending and the rise of local brands.

The German group now expects a profit margin in operating operations of around 5.6 percent by 2024. This is down from the earlier estimate of 6.5 to 7 percent.

Porsche, which is owned by VW in majority, reported on Friday a 41% drop in its quarterly profit.

VW shares fell by 1 percent.