Volkswagen plans to shut down at least three factories in Germany, lay off tens of thousands of employees, and reduce the size of its remaining plants in Europe’s largest economy as part of a deeper-than-expected restructuring plan. This information was revealed by Daniela Cavallo, head of the company’s works council, on Monday.
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As Europe’s largest automaker, Volkswagen has been negotiating for weeks with labor unions over a plan to restructure and cut costs, including potentially closing factories on its home soil — a major blow to Germany’s globally renowned industrial base.
Volkswagen reiterated on Monday that restructuring is essential and said it would present specific proposals on Wednesday. “Management is absolutely serious about this. This is not saber-rattling during a collective bargaining round,” Cavallo told employees at Volkswagen’s largest plant in Wolfsburg, even threatening to end discussions.
“This is Germany’s largest industrial group’s plan to start selling off assets in its home country,” Cavallo added, though she did not specify which plants would be affected or how many of Volkswagen Group’s approximately 300,000 staff in Germany might be laid off.
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Cavallo’s statements mark a significant escalation in the conflict between Volkswagen’s workers and management, as the company faces severe pressure from high energy and labor costs, fierce Asian competition, weakening demand in Europe and China, and a slower-than-expected shift to electric vehicles.
This also increases pressure on the German government to find ways to revive the economy, which is facing the threat of a second consecutive year of contraction. Chancellor Olaf Scholz and his coalition are exploring ways to stimulate growth as Scholz lags in the polls ahead of next year’s federal elections.
Volkswagen also plans to cut salaries by at least 10% and freeze wages in 2025 and 2026, Cavallo said. Thousands gathered in Wolfsburg, where the company has been headquartered for nearly nine decades, blowing horns and whistles as workers demanded that no plant be shut down.
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Volkswagen stated it would present proposals on how to cut labor costs on Wednesday, when workers and management will meet for the second round of wage negotiations, coinciding with the release of the company’s third-quarter financial results. “The situation is serious, and the responsibility of the negotiating parties is enormous… Without comprehensive measures to regain competitiveness, we will not be able to fund essential investments for the future,” said Gunnar Kilian, a member of the Volkswagen Group’s board.
Thomas Schaefer, who leads Volkswagen’s brand division, said German factories are not productive enough, with operating costs 25-50% above targets, meaning some sites are twice as expensive as their competitors.
Volkswagen shares dropped more than 1% after the announcement, and shares of other automakers, like Mercedes-Benz, also fell. Volkswagen shares have lost 44% of their value over the past five years, compared to a 12% decline for Renault and a 22% gain for Stellantis.
“The plans go far beyond market expectations,” said Daniel Schwarz, an analyst at Stifel. “I believe this reflects a unique combination of unfavorable factors: fierce competition in China, weakened demand in Europe, especially for BEVs (battery electric vehicles), and stricter regulations.”
Labor unions hold significant power at Volkswagen, where worker representatives occupy half the seats on the supervisory board and, theoretically, have the legal right to strike starting December 1 as a way to further escalate the conflict.
Volkswagen’s situation reflects a broader trend in the world’s third-largest economy, as Germany’s dominance is increasingly challenged by more agile and cost-efficient competitors in key industries, including the automotive sector, the backbone of its economy.
“If Volkswagen confirms its dystopian path on Wednesday, the board should be prepared for the corresponding consequences on our part,” said Thorsten Groeger, IG Metall union negotiator, promising fierce resistance.
The threat of strikes, previously mentioned for early December, now appears very likely, Schwarz said.
Cavallo emphasized that Berlin urgently needs to create a comprehensive plan for Germany’s industrial sector to ensure that the country does not “go down the drain.” A government spokesperson noted that Berlin is aware of Volkswagen’s challenges and remains in close dialogue with the company and worker representatives.
“The Chancellor’s position on this is clear: possible management mistakes from the past should not be to the detriment of employees. The current goal is to maintain and secure jobs,” the spokesperson stated at a regular briefing.
Both Scholz and Finance Minister Christian Lindner are hosting separate business summits on Tuesday, while Economy Minister Robert Habeck has proposed a major investment stimulus plan last week.
Industry data suggests that there will be no immediate recovery for automakers, said Moritz Kronenberger, a portfolio manager at Union Investment, which owns shares in Volkswagen. “Significant cost-cutting measures must therefore be implemented promptly before the ongoing underutilization of plants leads to negative cash flow.”
This comes after more bad news for German automakers last week, with both Mercedes-Benz and Porsche committing to stepping up cost-cutting measures after reporting profit declines due to a weaker Chinese market.
German automakers also fear being caught in a potential trade war between the EU and China, with heavy EU tariffs on Chinese electric vehicles set to take effect this week.
“I think anyone who hasn’t yet realized what’s at stake should truly wake up now,” said Stefan Erhardt, an employee at another Volkswagen plant near the German city of Kassel. “This is really about the livelihoods of all of us, about the suppliers, and even every small bakery here at this location. I have to say, I’m really quite worried.”
