International. Volkswagen is considering closing factories in Germany for the first time in its history, a move that reflects the rising price pressure facing Europe's top carmaker due to competition from Asian rivals.
The announcement, which took place on Monday, September 2 of this year, marks the first major conflict between CEO Oliver Blume and the unions, in contrast to his predecessor Herbert Diess, known for his confrontations. Blume is now facing stiff resistance from the unions that wield great influence on VW.
VW's works council has said it considers a large vehicle plant and component factory in Germany obsolete. The board has promised "strong resistance" to the board's plans. Chief Financial Officer Arno Antlitz and Volkswagen brand boss Thomas Schaefer will meet with staff on Wednesday to discuss plans.
Daniela Cavallo, head of the works council and a member of the powerful IG Metall union, has indicated that she expects Blume to be personally involved in the negotiations, warning that the meeting will be "very uncomfortable" for the group's management. IG Metall has blocked previous attempts at deep changes, including Diess's departure in 2022.
Analysts have said VW's plants in Osnabrück and Dresden could be targets for closure. Lower Saxony, Volkswagen's second largest shareholder, has supported the overhaul of these facilities.
Volkswagen, which employs about 680,000 people, has also decided to end its job security program, in place since 1994 and which prevents job cuts until 2029. All measures will be discussed with the works council. IG Metall claims that the occupational safety program covers VW's plants in Wolfsburg, Hannover, Braunschweig, Salzgitter, Kassel and Emden.
Schaefer has stated that the situation is "extremely tense" and cannot be solved with simple cost-cutting measures. VW, which drives the bulk of the group's unit sales, is undertaking a drastic cost-cutting initiative with the aim of saving 10 billion euros ($11 billion) by 2026, in a bid to optimize expenses and survive the transition to electric vehicles.
Blume pointed out that the difficult economic situation, competition in Europe and the fall in competitiveness of the German economy require more forceful action. In the past five years, Volkswagen's shares have lost nearly a third of their value, making it the worst among major European automakers. The company faces challenges in Europe, the U.S. and especially in China, where local manufacturers such as BYD are capturing some of its market share.
This decision also represents a blow to German Chancellor Olaf Scholz, whose coalition government has been criticised in recent regional elections, with the far-right Alternative for Germany party winning in one state and coming second in Saxony.
Carsten Brzeski, global head of macro at ING Research, warned that VW's move underscores the consequences of years of economic stagnation and growth-free structural changes. "If an industrial giant like this has to close factories, it could be the wake-up call that Germany's economic policy needs to be considerably strengthened."
Germany's Ministry of Economy has signaled that VW's management must act responsibly in the current market environment, but has refrained from commenting specifically on the planned cuts. IG Metall has claimed that the decision "shakes the foundations" of Volkswagen, Germany's largest industrial employer and Europe's top carmaker by revenue.
Cavallo has criticized Volkswagen's management for making "many wrong decisions" in recent years, including a lack of investment in hybrids and the development of affordable electric vehicles. Instead of closing plants, the board should focus on reducing complexity and taking advantage of synergies within the group, Cavallo added.
