German car-manufacturing giant Volkswagen is considering closing some of its plants and laying off some of its workforce.
Rising costs were cutting into profits, leaving Volkswagen facing “particularly significant challenges,” the group said in an internal memo seen by AFP. “In the current situation, even plant closures at vehicle production and component sites can no longer be ruled out,” Volkswagen said in the note sent to employees.
Founded in 1937, the company has never had to close plants in Germany.
In the memo, Volkswagen CEO Oliver Blume wrote that the European automotive industry is in a “serious situation,” the economic environment has become “even tougher,” as new competitors are entering the European market. He warned that Germany was “falling further behind in terms of competitiveness” as a manufacturing location.
The group—whose brands include luxury makes Audi and Porsche and mass-market vehicles Volkswagen, SEAT, and Skoda—cited disappointing results published in August that showed a dip in profits.
Volkswagen has lost almost a third of its value over the past five years, making it the worst performer among major European carmakers. It faces a challenging landscape in Europe, the U.S., and especially China, where domestic electric vehicle makers led by BYD are grabbing its market share.
The announcement on Monday comes despite cost-saving measures introduced last year, intended to save around €10 billion by 2026. However, media reports say that an additional €4 billion in savings also needs to be found.
“Simple cost-cutting measures” were no longer enough, and “the brands within Volkswagen AG must undergo comprehensive restructuring,” the board said, adding that they were considering cuts to jobs previously not at risk.
The discussion around closures and layoffs concerns the company’s core Volkswagen brand.
The board said that the current strategy of offering reduced contracts and severance packages to employees nearing retirement was no longer sufficient to meet the company’s targets, and announced it was terminating a job security program that has been in place since 1994 and would have protected jobs until 2029.
Workers’ union IG Metall responded angrily, saying it would resist the changes at the carmaker. Representative Daniela Cavallo said management had made many wrong decisions in recent years, including not investing in hybrids or being faster at developing affordable battery-electric cars.
Stephan Weil, the Social Democrat prime minister of the state of Lower Saxony, which holds 20% of the voting shares in the carmaker, also called on Volkswagen to avoid plant closures. Volkswagen’s costs “need to be examined to ensure continued success,” but the option of plant closures should “simply not come into question,” he emphasised.
Some 680,000 people are employed by Volkswagen worldwide, with over 300,000 working for the group in Germany. Volkswagen is the country’s largest industrial employer and Europe’s top carmaker in terms of revenue. The company has not closed a production site for over three decades, with the last closure taking place in 1988 in the United States.
Chief Financial Officer Arno Antlitz will speak to staff alongside Volkswagen brand chief Thomas Schaefer at a works council meeting on Wednesday, September 4th.
The announcement by Volkswagen comes at a bad time for the Social Democrats, who are the largest party in the federal government in Berlin. The party and its coalition allies recently suffered huge losses at regional elections in Saxony and Thuringia, and are on course to be ousted from government at next year’s general elections if their handling of the economy, the cost of living, and migration crises doesn’t change.
“If such an industrial heavyweight has to close factories, it may be the long overdue wake-up call that (Germany’s) economic policy measures need to be stepped up considerably,” Carsten Brzeski, global head of macro at ING Research, told Reuters.
Opposition leader Friedrich Merz, head of the centre-right CDU, called Volkswagen’s announcement a wake-up call for the government, adding that “Germany is no longer competitive enough.”
