Volkswagen, one of the world’s largest car manufacturers, is contemplating the unprecedented move of closing some of its factories in Germany. This decision, if implemented, would mark the first time in the company’s 87-year history that it has taken such drastic action. The move comes as Volkswagen grapples with declining profits and intensifying competition from Chinese electric vehicle (EV) manufacturers.
On Monday, Volkswagen announced that it is considering a range of cost-cutting measures to safeguard its future, including the potential termination of a long-standing employment protection agreement from 1994. This announcement underscores the challenges facing the European automotive industry, as highlighted by Volkswagen CEO Oliver Blume, who expressed concerns about Germany’s waning competitiveness as a manufacturing hub.
Volkswagen has already initiated a €10 billion cost-cutting campaign but continues to lose market share in China, its largest market. In the first half of this year, the company’s deliveries in China dropped by 7%, leading to an 11.4% decrease in the Group’s operating profit, which fell to €10.1 billion. The company’s struggles in China, where it is being outpaced by local EV brands like BYD, are also threatening its operations in Europe.
Amid these challenges, Volkswagen is focusing on reducing costs across its factories, supply chains, and workforce. “It’s all about costs now,” emphasized Blume during a recent press conference.
However, these proposed cuts have met resistance from labor unions, which hold significant influence within Volkswagen’s supervisory board. IG Metall, the powerful union representing Volkswagen workers, has criticized the company’s management for its current difficulties and has vowed to fight to protect jobs. Thorsten Groeger, a negotiator for the union, warned that the proposed plans could undermine the very foundations of Volkswagen.
Volkswagen employs nearly 683,000 people worldwide, with around 295,000 of those jobs based in Germany. Despite the challenges, Thomas Schaefer, CEO of Volkswagen Passenger Cars, reaffirmed the company’s commitment to Germany as a business location and stated that Volkswagen would soon engage in discussions with employee representatives to explore sustainable restructuring options for the brand.