Volkswagen's historic factory closures and job protection pledge under threat

AP underscores that Volkswagen is contemplating the closure of some of its factories in Germany for the first time in its 87-year history.

Volkswagen is contemplating the unprecedented move of closing some of its factories in Germany for the first time in its 87-year history. The automaker argues that without these closures, it will be unable to achieve its crucial cost-cutting targets necessary to stay competitive.  

CEO Oliver Blume has also informed employees that the company must discontinue a 30-year-old commitment to job security, which had promised no layoffs through 2029. This announcement has triggered strong reactions from worker representatives and raised concerns among German policymakers.   The company’s management asserts that its core brand needs to realize cost savings of 10 billion euros by 2026.

However, it has become apparent that the Volkswagen Passenger Car division is falling short of this target despite efforts to reduce the workforce through retirements and voluntary buyouts in Germany.   With the European automotive market still recovering from the effects of the coronavirus pandemic, Volkswagen now faces an excess of factory capacity. Maintaining these underutilized assembly lines has become costly, driving the need for significant restructuring.

Chief Financial Officer Arno Antlitz addressed 25,000 employees at Volkswagen's Wolfsburg headquarters, explaining the current situation: European car sales have dropped by about 2 million annually compared to pre-pandemic levels in 2019, when sales hit 15.7 million units. Given Volkswagen's approximately 25 per cent share of the European market, this translates to a shortfall of 500,000 vehicles, equivalent to the output of around two factories.   Antlitz emphasized that this shortfall isn't due to Volkswagen’s product quality or sales performance but rather a significant contraction in market demand.  

The Volkswagen Group, which includes brands like SEAT, Skoda, CUPRA, and commercial vehicles, reported an operating profit of 10.1 billion euros ($11.2 billion) for the first half of the year. This represents an 11 per cent decline from the same period last year. Despite a modest 1.6 per cent increase in sales to 158.8 billion euros, the growth was limited by weak demand and higher costs. CEO Oliver Blume described the performance as "solid" given the challenging environment, noting that luxury brands such as Porsche, Audi, and Lamborghini are performing better than the Volkswagen models.   The cost-reduction focus is on the core brand and its German workforce. The Volkswagen Passenger Car division saw a dramatic 68 per cent drop in earnings in the second quarter, with a profit margin shrinking to just 0.9 per cent from 4 per cent in the first quarter. This decline is partly due to significant restructuring costs, including 1 billion euros spent on job buyouts.