Car industry Volkswagen considers plant closures and redundancies

Volkswagen is no longer ruling out plant closures and compulsory redundancies as part of the VW brand's cost-cutting program. As VW announced on Monday, the current job security agreement has been terminated. This ruled out compulsory redundancies until 2029.

In the view of the Board of Management, the brands within Volkswagen AG must be comprehensively restructured, it said following a management meeting. "Even plant closures at vehicle production and component locations can no longer be ruled out in the current situation without rapid countermeasures."

In addition, the planned job cuts through partial retirement and severance payments are no longer sufficient to achieve the planned savings targets.

Works council mobilizes against plans

"In the company's view, restructuring solely in line with demographic trends is not sufficient to achieve the structural adjustments required in the short term to increase competitiveness," the press release stated. "Against this backdrop, the company feels compelled to terminate the job security agreement that has been in place since 1994."

The head of the works council, Daniela Cavallo, announced massive resistance. The plans are "an attack on our employment, locations and collective agreements", she explained in a special edition of the works council newspaper "Mitbestimmen", which was obtained by the German Press Agency.

"This puts VW itself and therefore the heart of the Group in question. We will fiercely defend ourselves against this," said Cavallo. "With me, there will be no VW site closures!" Together with the state of Lower Saxony, the employee representatives have a majority on VW's Supervisory Board.

Car industry under pressure

Group CEO Oliver Blume justified the course with the worsening situation. "The European automotive industry is in a very challenging and serious situation. The economic environment has become even tougher and new suppliers are pushing into Europe," he said according to the press release.

"In addition, Germany in particular is falling further behind in terms of competitiveness. In this environment, we as a company must now act consistently," continued Blume.

Core brand has been a problem child for years

The Volkswagen core brand has been struggling with high costs for years and is far behind Group companies such as Skoda, Seat and Audi in terms of returns. A cost-cutting program launched in 2023 should bring about a turnaround and improve earnings by ten billion euros by 2026. However, the current weak new business has now further exacerbated the situation.

In order to still achieve the targeted improvements in earnings, costs would now have to fall more sharply than previously planned. According to "Handelsblatt", up to an additional four billion euros will have to be saved. "The headwind has become much stronger," said brand boss Thomas Schäfer according to the press release. "We therefore need to step up our efforts and create the conditions for long-term success."