Volkswagen faces a difficult crossroads as it struggles to adapt to a European car market that has failed to recover its car sales since the pandemic. According to several reportsthe brand could be considering cutting “up to 30,000 jobs” y, for the first time in its 87-year historythe closure of a factory in Germany.
If these cuts are implemented in Germany, which are equivalent to around 10% of the total number of employees in the country, they would mainly affect the manufacturer’s research and development (R&D) activities, where Between 4,000 and 6,000 jobs would be lost out of a total of 13,000 that is in this division. But the final decision has not yet been made.
A restructuring necessary for survival in a hostile market
Like other major traditional manufacturers, Volkswagen is struggling to cope with a hostile environment: depressed sales, compressed profit margins and strong competition, especially from Chinese electric vehicle makers, which have made a strong entrance into Europe after studying their rivals very carefully.
As Volkswagen’s CFO recently saidArno Antlitz, told a group of employees at the brand’s headquarters in Wolfsburg (Germany), the brand’s sales in Europe have fallen dramatically, with “500,000 fewer vehicles sold per year, the equivalent of the production of two plants” and warned that he “did not expect a recovery in the short term.”
To deal with this reality, the company’s solution is to cut costs drastically and adjust production. Thus, the company could not only be considering the possibility of cutting thousands of jobs in Germany (especially in areas such as R&D) or closing its first factory.
In addition, the brand’s CFO might be considering reduce investments in the next five years from 170 billion euros to 160 billion.
The Volkswagen works council has told the German news agency (DPA) that although the manufacturer must reduce its costs in its German plants to be able to earn enough money and invest in their future, The figure of 30,000 layoffs “has no basis and is simply nonsense.” The outcome remains to be seen, as “how to achieve this goal together with workers’ representatives is part of the upcoming talks,” he added.
The European car market has recorded its worst record in the last three years, with a fall of 18.3% in August and only 640,000 cars soldThe drop has affected both petrol and diesel vehicles, as well as electric cars, which have fallen by more than 40%, while the prices of used cars continue to rise. Volkswagen, which accounts for around 25% of the European markethas seen its passenger car division record a 68% drop in profits during the second quarter of 2024, with a profit margin that barely reached 0.9%
In this regard, the current CEO of the Volkswagen Group, Oliver Blume, has also stressed the urgency of reducing costs to ensure the company’s long-term competitiveness: “We have to cut costs and adjust our production to survive the shift to electric cars.”
Blume also indicated that the company must achieve cost savings of 10 billion euros by 2026 and questioned the viability of maintaining the labour protection that had guaranteed jobs until 2029, which has led to a source of tension with unions and workers’ representatives.
Antlitz added that “rising costs, including higher wages and slow sales of the company’s electric vehicle line, are a deeper problem,” stressing that it is not a problem with the products, but rather insufficient demand in a saturated market hit by the withdrawal of purchase aid and also by the lack of charging infrastructure.
Outside Europe, According to BloombergSAIC Volkswagen is also reportedly preparing to close a plant in Nanjing, China, “as early as next year.” The plant makes both Volkswagen Passats and Skoda vehicles, and has an annual production capacity of up to 360,000 units. SAIC Volkswagen has already stopped production at one plant so far, and is slowing down production at a second one.
The impact of poor market performance on European industry
Volkswagen workers in Wolsfurgo (Germany) meet with management. Source: AP News
In the current context, it is not only Volkswagen that is facing difficulties. Audi, another brand of the Group, has stopped production at its plant in Forest, Brussels, due to the drop in demand for its electric model Q8 e-tron.
If a new model is not allocated or a buyer is found, the closure of this plant could be inevitable, putting more than 3,000 jobs at risk and potentially resulting in 2,600 redundancies by the end of 2025. Possible buyers include Chinese brand NIO, reflecting how Asian manufacturers are taking advantage of the weakness of European brands to expand on the continent.
Volkswagen has also tried to save its situation with a restructuring of its management team, seeking new strategies to boost the brand in the short and long term.
However, former VW Group CEO Herbert Diess was the first to warn in 2021 that 30,000 jobs were at stake in Germany because of the electrification of the industry. The warning damaged Diess’ relations with Volkswagen unions and It was one of the factors that cost him his job. Former Porsche executive Oliver Blume then took over.
If measures such as mass layoffs and plant closures are finally implemented, they would not only have a direct impact on Volkswagen’s workforce, but could trigger a series of painful consequences for the entire European automotive industry, eroding the continent’s industrial base and competitiveness against the Asian giants.
Volkswagen may have to face market realities and adjust its operations, but how it does so will have repercussions far beyond its factories and offices, impacting the economy and jobs across the continent.
Source: www.motorpasion.com
