Volkswagen Considers German Plant Closures in Effort to Reduce Costs

An electric car on the assembly line at a Volkswagen plant in Zwickau, Germany. The automaker has faced decreased demand for its electric vehicles in Europe.Credit...Jens Schlueter/Agence France-Presse — Getty Images

Volkswagen is considering closing its factories in Germany for the first time in its 87-year history, marking a potential end to its long-standing guarantee of job security. This decision comes as the company struggles with profitability issues amid increasing competition from Asian automakers.

In a statement released on Monday, Volkswagen indicated that the potential closures are part of broader efforts to strengthen its flagship brand. However, the company did not provide specific details about the potential plant closures or other measures being considered.

Volkswagen emphasized that the current situation is critical, noting that even plant closures at vehicle production and component sites cannot be ruled out without immediate action. "The situation is extremely tense and cannot be resolved through simple cost-cutting measures," the company said.

IG Metall, the powerful union representing German automotive workers, has vowed to oppose any job cuts. The union revealed that Volkswagen managers had informed them that a cost-cutting plan announced last year was insufficient, and additional savings worth "billions" are needed. Volkswagen did not confirm this figure.

Last year, Volkswagen and worker representatives agreed on measures to save the company 10 billion euros (about $11 billion) by 2026. These measures included job cuts primarily through attrition, but the company now asserts that these plans are no longer adequate.

Oliver Blume, Volkswagen's CEO, stated, "The European automotive industry is in a very demanding and serious situation. Germany, in particular, is falling further behind in terms of competitiveness. In this environment, we as a company must now act decisively."

Volkswagen, which owns brands such as Audi, Porsche, and Lamborghini, has seen its flagship brand suffer from declining sales, particularly in the European electric vehicle market. The company’s share of the Chinese market, its largest, has also diminished due to the rise of competitive domestic electric car manufacturers.

The German economy, Europe's largest, experienced a contraction of 0.1% from April to June, dampening hopes of recovery from stagnation caused by high energy and labor costs.

If Volkswagen proceeds with plant closures and ends its job guarantee agreement, it will face significant opposition from union leaders and workers' representatives, who hold half of the seats on the company's supervisory board. Daniela Cavallo, a union leader and head of the council representing Volkswagen workers, criticized the management for not devising an effective strategy and instead focusing on job cuts. “We will fiercely defend ourselves against this,” Ms. Cavallo stated. “There will be no plant closures with us.”

Volkswagen’s potential plant closures, coupled with ongoing wage negotiations set for this fall, could further strain the company's relationship with its workforce. Nearly half of Volkswagen’s 650,000 global employees are based in Germany.

Ferdinand Dudenhöffer, director of the Center for Automotive Research in Gelsenkirchen, commented on the precarious situation, noting that the company and its flagship brand are in a "very dangerous situation."