“The problem is not the product, but the costs.” Volkswagen doesn’t get its bills because its workers earn too much in Germany

While the Volkswagen Group and the unions are preparing a new round of negotiations, in which the group has proposed the closure of several factories in Germany, a document prepared by the works council reveals that the Manufacturer salaries in Germany are among the highest in the sector, superior to those of BMW or Mercedes. Although the CEO of the manufacturer already warned about this in September, now it is not said by the brand, but by the representative body of the workers.

The data, contained in an internal memorandum of the Volkswagen works council seen by Reutershighlight the difficulty that the company faces in remaining competitive in its high-priced domestic market in the face of the arrival of cheaper models from China.

Volkswagen has the highest labor cost in the industry worldwide in Germany

Volkswagen, as a brand, will have to negotiate with the representatives of some 120,000 workers. And while the works council recognizes that salaries at Volkswagen are not competitive, the unions are asking for a 7% salary increase and the company wants to obtain a 10% reduction.

Volkswagen dedicates 15.4% of its income to covering its labor costs at a global level. These are data from 2023 and their proportion has improved compared to 2020 where 18.2% of their income went to labor. However, compared to other German manufacturers, this is still a high proportion. In 2023, BMW dedicated 9.5% of its income to labor and Mercedes 11%, according to the Volkswagen works council memo.

The works council’s conclusions are based on annual reports showing companies’ overall spending on personnel compared to revenue. The figures include all personnel, from workers to executives.

As Daniel Schwarz, an analyst at Stifel, recalls in Reuters, “The Volkswagen brand has been the market leader in Europe every year since 2005. Its cars are competitive. The problem is not the product, but the costs”.

Germany, where Volkswagen employs almost 45% of its workforce, has the highest labor costs in the global automotive industry, with an average of 62 euros per hour in 2023which represents an increase of around a third compared to ten years ago, according to the German automobile association VDA. It is also 25 euros more than the German average 41.30 euros per hour.

In France, Italy and Spainwhere Volkswagen rivals Stellantis and Renault have most of their European plants, auto workers win 47, 33 and 29 euros per hour respectivelyaccording to data from the VDA.

Obviously, Volkswagen’s problem is not exclusively labor, because as Volkswagen brand director Thomas Schaefer recalled, if Volkswagen’s German factories have a cost between 25% and 50% higher than the rest, it is also because the increase in energy, raw materials and personnel costs.

In the case of personnel, although Volkswagen has laid off 8,000 workers in its factories between July 2019 and September 2024, it has hired 4,000 more administrators at the same time.

The unions remember that labor represents only a small part of the company’s cost base and are urging management to make cuts in other areas in order to revive declining profits.

In an internal circular addressed to staff, the works council underlines the strong falling profits in other parts of the Volkswagen group, such as Porsche, Audi and Volkswagen Financial Services, in the first nine months of the year, which it claims has cost the company 5.5 billion euros. “This alone demonstrates that it is not enough to place labor costs at the center of communication,” says the works council.