For the first time in its 90-year history, Volkswagen (VW), Europe's leading carmaker and the world's second-largest, is considering the closure of one of its production sites in Germany, along with lay offs, in order to cut costs massively. Company CEO Oliver Blume informed his executives on Monday, September 2, citing a considerably worsened economic and competitive situation. Since then, the Betriebsrat, VW's historically powerful employee committee, has decided to put up a strong front. Daniela Cavallo, the Betriebsrat president, announced on Tuesday that she would "fight bitterly" against what she sees as a risk of "destroying the heart of Volkswagen."
The savings plan is one of the most radical ever announced in the automaker's history. Not only is Volkswagen's management considering the closure of German plants, but it has also hinted at the lifting of a job protection agreement, which in principle runs until 2029. If implemented, these two measures would represent major breaks in the group's history.
Because of the considerable influence of the Betriebsrat, which has priority in negotiating these non-redundancy agreements, it is virtually impossible for a VW employee to lose his or her job. As for the protection of German plants, it always takes priority in strategic decisions. This exceptional power of employees, a product of the automaker's particular history, is reflected in the group's workforce: almost half of VW Group employees worldwide (684,000) work in Germany (300,000), while one in three vehicles is sold in Asia.
At VW, cost-cutting plans usually take the form of early retirement programs and severance packages. But the latest such program, amounting to €10 billion and negotiated in winter 2023 with the Betriebsrat, has not had the desired effect. Speaking to company executives, Blume reiterated the extent to which economic parameters had deteriorated in recent months: "New competitors are entering the European market. Germany in particular as a manufacturing location is falling further behind in terms of competitiveness." In this context, he acknowledged, conventional measures were no longer sufficient to stem the financial hemorrhage.
No cost-cutting figures were officially announced at the meeting. But the German press revealed on Tuesday evening that Volkswagen alone will have to save at least €4 billion more than previously announced. Despite fairly stable sales in recent months, the car brand has seen its financial situation deteriorate severely due to vehicle sales discounts, wage increases, restructuring costs and new model launches. In the first half, its operating margin collapsed to 2.3%, after 3.8% last year. This is a far cry from the 6.5% target set by the CEO. By way of comparison, Stellantis posted an operating margin of 12.8% last year.
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