Volkswagen plans first factory closures in Germany

(Frankfurt) Europe’s leading carmaker Volkswagen is considering an unprecedented cost-cutting plan in the company’s history, with factory closures in Germany and mass layoffs, to deal with an “extremely tense situation.”

“Germany […] “is losing more and more ground in terms of competitiveness,” indicates an internal document sent to AFP on Monday following a meeting of group executives, “factory closures at vehicle and component production sites can no longer be excluded.”

Such a plant closure decision would be the first since 1988, when VW closed its Westmoreland plant in the United States. But on German soil, Volkswagen has never closed a plant in its 87-year history.

In this alarmist note, the group’s CEO Oliver Blume also opens the door to compulsory layoffs, by calling for a review of an agreement dating from 1994 which was supposed to guarantee jobs until 2029, judging that voluntary departures or retirements will not be enough.

Volkswagen “must now act decisively” as “the European automotive industry finds itself in a very demanding and serious situation,” he said.

He did not give details at this stage on the number of positions potentially at risk among the 300,000 jobs that the Volkswagen group has in Germany, including 120,000 for the VW brand.

Chinese competition

“The economic environment has become even tougher and new competitors are entering the European market,” Blume said.

Volkswagen has been suffering for months from falling sales, a weakening automotive sector and growing competition from Chinese manufacturers, particularly in China, its main market.

Within the group of ten brands, the historic brand VW, inventor of the Golf and the Passat, is considered the weak link. The restructuring plan must concern this flagship brand of the group.

A major cost-cutting programme was launched last year at VW to increase its profitability, but it did not produce all the expected results.

“The situation is extremely tense and cannot be resolved by simple cost-cutting measures,” Volkswagen management stressed in the document.

The group’s results are down. Volkswagen saw its quarterly net profit fall by 4.2% to 3.63 billion euros between April and June, due to a drop in its vehicle sales and rising costs.

Oliver Blume had already spoken about continuing the early retirement plans, the hiring freeze and the severance pay program. Now he wants to go further.

A scenario that the industry union, IG Metall, has ruled out. In a press release, it denounced the plan as “irresponsible” and hopes to begin negotiations with the group this month.

General gloom

The prime minister of the regional state of Lower Saxony, which holds 20 percent of the group’s shares, Stephan Weil, called for job cuts to be prevented. “All other possible options” should be put on the negotiating table, he said.

The number of jobs potentially affected has not been communicated among the 300,000 jobs that Volkswagen has in Germany, including 120,000 for the VW brand.

Volkswagen’s announcements deal a fresh blow to the already faltering German economy, with slowing growth, the eurozone’s laggard, and an industry suffering from rising energy costs following the outbreak of Russia’s war in Ukraine and a slowdown in global trade.

In the automotive sector, they are in addition to social plans already announced in recent months by German equipment manufacturers (Bosch, Continental, ZF).

The savings plan by Volkswagen, an iconic national company, also further weakens the very unpopular government of Chancellor Olaf Scholz, who was disavowed at the polls on Sunday during regional elections in eastern Germany marked by a spectacular surge in the far right.