Volkswagen in trouble? Carmaker considers first ever German factory closure

Volkswagen is struggling with a slow EV transition and falling consumer demand in Europe. Since last year, the carmaker has been on a €10 billion cost-cutting drive, which included a 20% reduction in “administrative personnel costs.”

It is now considering shutting down Volkswagen plants in Germany while attempting to end an agreement with unions to keep jobs safe until 2029.

Volkswagen CEO Oliver Blume blamed the plight of the German manufacturing industry, which has been fighting negative growth for the past couple of years.

“The economic environment has become even tougher and new players are pushing into Europe,” Blume said in a statement on Monday. “Germany in particular as a manufacturing location is falling further behind in terms of competitiveness. 

“In this environment, we as a company must now act decisively.”

Volkswagen remains a global powerhouse. It was the highest-ranked European company on the Fortune Global 500 list after raking in $348 billion in revenues and delivering 9.24 million vehicles last year. However, it has struggled with slim margins, and falling consumer sentiment risks exacerbating this.

The company’s €10 billion agreement last year looked like a win for Volkswagen. Lengthy negotiations with its powerful works council ensured that headcount reductions would be done in a “socially responsible” manner. 

Its strategy has included maximizing the use of the “demographic curve” by offering early retirement packages to baby boomer workers, introducing a hiring freeze, and blocking fresh access to Tarif Plus, Volkswagen’s highest pay bracket.

Last week, German publication Wolfsburger Allgemeine Zeitung reported that Volkswagen offered employees a special €50,000 bonus to accept severance. This meant some employees reportedly received up to €450,000 to leave the company.

A factory closure, however, would represent a divergence from its more protracted strategy to reduce costs.

The outcome of any factory closures will depend on Volkswagen CEO Blume’s ability to negotiate with his company’s works council. That will be a tough ask given Volkswagen’s three previous CEOs have each been outdone by attempts to find efficiencies.

Volkswagen employs 650,000 employees globally and around 300,000 in Germany. 

Comments from unions indicate Bloom faces a similar fight to get any proposed closures through the council, members of which sit on the company’s board.

In a note to employees seen by the Financial Times, Daniela Cavallo, chair of the council representing Volkswagen employees, said brand chief executive Thomas Schäfer “admitted” that cost-saving plans hadn’t met expectations.

“As a result, the executive board is now questioning German plants, the VW in-house collective wage agreements, and the job security program running until the end of 2029,” said Cavallo.

A representative for Volkswagen didn’t immediately respond to a request for comment.