VW Considers Closing German Factory for the First Time in 87-Year History
In a landmark move, Volkswagen has disclosed that it is contemplating the closure of factories in Germany for the first time since its foundation in 1937. The auto giant is navigating through the challenging waters of cost reduction and transitioning towards electric vehicle production, considering measures that could save several billion euros. This announcement identifies a significant shift in strategy for Volkswagen, which also encompasses esteemed brands like Audi, Seat, and Skoda, setting it on a potential collision course with unions.
This revelation was met with stern opposition from unions, marking it as a “black day” for Volkswagen. According to the works council union, Volkswagen sees a large vehicle plant and a component factory in Germany as obsolete, prompting vows of “fierce resistance” against the executive board’s plans. Moreover, Volkswagen intends to terminate its job security program established in 1994, which has safeguarded jobs from cuts until 2029, although all measures will undergo discussion with the works council.
Oliver Blume, Volkswagen’s Chief Executive, highlighted the intensified economic pressures and the competitive challenges arising from new market entrants in Europe. He pointed out the diminishing competitiveness of Germany as a business location.
As part of a broader cost-cutting initiative, the Volkswagen brand is targeting €10 billion in savings by 2026 to streamline operations. The situation, according to Thomas Schaefer, head of the VW brand, is incredibly tense, indicating that superficial cost-cutting measures are insufficient to overcome the current challenges.
The announcement has sparked immediate backlash from unions. With Volkswagen employing roughly 650,000 workers globally, nearly 300,000 of whom are in Germany, the prospect of factory closures has been met with fierce criticism. Daniela Cavallo, chief executive of the VW works council, criticized the board for various past missteps, including slow adoption of electric vehicle production and neglecting investment in hybrid technologies. Instead of closures, Cavallo advocates for reducing complexity and leveraging synergies across Volkswagen’s group plans.
Union IG Metall condemned the decision as irresponsible, potentially shaking the foundation of the company. The financial implications are further compounded by Germany’s struggling economy and the surge in power prices following the loss of cheap Russian gas.
Volkswagen’s transition towards electric vehicles has not been smooth, with delayed launches in the US market and sales of EVs stalling in the first half of the year. These challenges, alongside competitive pressures from Chinese rivals in Europe, depict a critical point in Volkswagen’s history, underscoring the need for strategic adaptation to secure its future in the rapidly evolving automotive landscape.
