Volkswagen is considering closing some of its German factories for the first time in its 87-year history, aiming to achieve significant cost cuts to stay competitive. This drastic measure comes as the automaker grapples with challenges, including overcapacity in its home market, lower demand for electric vehicles (EVs), and rising operational costs.
CEO Oliver Blume announced recently that the company is evaluating the possibility of ending a long-standing job protection agreement that would have shielded workers from layoffs until 2029. The proposal has sparked outrage among employee representatives and concerns from German politicians.
Volkswagen’s core Passenger Car division is facing intense pressure to save €10 billion by 2026. Despite efforts like early retirements and voluntary buyouts, the company has yet to reach its target. The ongoing reduction in Europe’s car market, which is now 2 million units smaller than pre-pandemic levels, has worsened the situation.
Chief Financial Officer Arno Antlitz addressed 25,000 employees at the company’s headquarters in Wolfsburg, explaining that the company currently has more production capacity than demand can justify. “We are short of 500,000 cars, the equivalent of around two plants,” Antlitz said. This gap in production is primarily due to lower sales, which are not a reflection of product performance but of a shrinking European market.
Financial Struggles
Volkswagen’s overall financial performance remains relatively solid, with an operating profit of €10.1 billion ($11.2 billion) in the first half of 2024. However, the core Passenger Car division has seen its earnings plummet by 68% in the second quarter, with profit margins shrinking to 0.9%. Rising labour costs, sluggish EV sales, and growing competition from cheaper Chinese-made electric vehicles are eroding the division’s profitability.
Volkswagen faces mounting pressure to accelerate its transition to EVs, a costly endeavour further complicated by Europe’s tightening emissions regulations. High battery costs and reduced subsidies for EVs are cutting into profits.
The company employs around 120,000 workers across 10 plants in Germany, making any factory closure a significant blow to the local economy. As a symbol of post-war German prosperity, the prospect of a plant closure is causing anxiety among workers and political leaders alike. Employee representatives, who have significant influence within the company’s governance structure, have vowed to resist any plant closures, calling for better management and more competitive electric car offerings.
