Volkswagen, the iconic German automaker, is considering an unprecedented shake-up in its domestic operations as it grapples with sluggish sales and intensifying competition in the electric vehicle (EV) market. According to the company’s works council chief, Daniela Cavallo, VW plans to shutter at least three factories in Germany, scale down capacity at others, and initiate substantial workforce reductions, including potential pay cuts of up to 10%.
Addressing employees at Volkswagen’s Wolfsburg headquarters, Cavallo underscored the gravity of the planned restructuring, warning that all of the company’s German plants face potential cuts. “None is safe,” she said, reflecting the deep-rooted concerns shared by VW’s 120,000 German employees. The automaker’s struggles reflect broader challenges in Europe’s industrial powerhouse, which faces a manufacturing slowdown and fears of increased unemployment.
Volkswagen, which maintains 10 production sites across Germany, has long been a pillar of the nation’s economy, with Lower Saxony’s state government holding a 20% stake in the company. However, as demand for traditional combustion vehicles falls and EV adoption proves slower than expected, Volkswagen has identified surplus production capacity equivalent to two full-scale factories. The company’s EV ambitions have been hampered by fierce competition from Chinese manufacturers who enjoy lower production costs and are increasingly dominating the global EV market.
One notable factory on the chopping block is VW’s Osnabrück plant in Lower Saxony, which recently lost a key contract with Porsche, a VW subsidiary. The potential closure of Osnabrück is politically contentious, with Lower Saxony’s state premier, Stephan Weil, previously stating that plant closures should not be considered. However, Volkswagen’s management is pushing for aggressive cost-cutting, citing escalating energy, personnel, and raw material costs as well as a shrinking European market, which has contracted by 2 million vehicles since 2020.
Volkswagen’s management has been in talks with labour representatives since mid-2023, signalling that the company’s deteriorating economic situation requires a “fundamental restructuring.” Gunnar Kilian, VW’s head of human resources, emphasised the weight of the situation, noting that the financial challenges demand significant concessions from both management and labour. Kilian confirmed that factory closures are on the table, alongside proposals to cut labour costs in upcoming negotiations.
Cavallo, however, hinted at potential industrial action should VW move forward with plant closures and layoffs. She warned that the company was “playing with the massive risk that everything will soon escalate here,” indicating that the workforce might take collective action to protect their jobs and wages. VW employees in Germany are already reeling from a two-year pay freeze, with the proposed 10% cut representing an effective real-terms reduction of up to 18%.
Volkswagen’s restructuring plans come at a challenging time for Germany’s traditional automakers, who are being squeezed by a perfect storm of rising costs, slowing demand, and the imperative to invest in EV technology. While companies like BMW, Mercedes-Benz, and Porsche are also feeling the strain, Volkswagen’s predicament is particularly acute due to its high labour costs and the scale of its production in Germany.
The company’s CEO of Volkswagen Passenger Cars, Thomas Schäfer, noted that German factories operate at a significantly higher cost than the industry standard, impacting VW’s competitiveness in an evolving market. The automaker is reportedly looking to abandon its long-standing employment protection agreement, part of an effort to save around €10 billion as it seeks to streamline operations and return to profitability.
The broader economic implications of VW’s restructuring plans are significant. As Europe’s largest economy faces an industrial slowdown, Volkswagen’s planned downsizing highlights the challenges facing traditional manufacturers in the shift to electric mobility. Amid this industry-wide pivot, Volkswagen’s struggles illustrate the pressures on legacy carmakers to adapt quickly or risk losing market share to leaner, more technologically agile competitors.
VW’s fate is emblematic of the larger transformation underway within the global automotive industry. As Volkswagen seeks a viable path forward in the face of rising costs and slowing demand, its restructuring decisions could have far-reaching consequences, not only for its workforce but for the entire German manufacturing landscape. The upcoming labour negotiations will be critical, as management and unions grapple with a path to balance cost-cutting with the preservation of jobs, potentially shaping the future of the automotive industry in Germany.
