Volkswagen considers plant closures in Germany to cut costs

Volkswagen AG is contemplating the unprecedented closure of some of its factories in Germany as part of a strategy to make deeper cost reductions.

This move, if implemented, would be the first such closures in the company’s 87-year history and could pose a significant challenge to Chancellor Olaf Scholz's government.

The potential cost-cutting measures are aimed at the company’s primary passenger car brand as well as other operations within the group. Volkswagen is also considering terminating its agreement with unions that currently ensures job security until 2029, the company announced on Monday.

These actions would likely lead to a confrontation with powerful labor unions, which have historically had a strong influence over the company. "The economic environment has become even tougher, and new competitors are entering the European market," said Volkswagen CEO Oliver Blume. "Germany as a business location is increasingly losing its competitive edge."

The situation could become a major test for Blume, who also leads the Porsche sports car brand. Previous efforts by Volkswagen to reduce costs, particularly within its passenger car division, have often been met with resistance from unions. The challenges have been exacerbated by a sluggish transition to electric vehicles (EVs) and a slowdown in consumer spending, making profitability even more difficult to achieve.

Daniela Cavallo, head of the Volkswagen works council, criticized the company’s management, stating that recent meetings revealed the potential for the company’s core brand, which includes models like the Golf and Tiguan, to become unprofitable. The company is reportedly planning to shut down at least one major car manufacturing plant and a component site in Germany, along with scrapping existing wage agreements.

Volkswagen currently employs around 650,000 people globally, with nearly 300,000 of those jobs located in Germany. The company's supervisory board is evenly split between labor representatives and other members, with the German state of Lower Saxony - holding a 20% stake in VW - often aligning with the trade unions.

Past efforts to push through similar efficiency measures have led to the downfall of several top executives, including former CEOs Bernd Pischetsrieder, Wolfgang Bernhard, and Herbert Diess, Blume’s predecessor. These executives faced significant opposition, particularly within Volkswagen’s domestic operations in Germany.