Volkswagen disaster: they suddenly realized that German labor is expensive

Tempers do not calm down Volkswagen around his house in the country of the big company, in Germany. After the management of the automotive concern announced that it would cut back on costs, citing declining revenues and thus an ever-increasing market disadvantage, and was also considering the closure of the domestic factory, it was expected that the trade unions would also have some unsolicited words in this regard. Especially since German workplace advocacy groups are proverbially influential and powerful.

If you like, at the beginning of the month the management of the Volkswagen Group declared war on the collective working in its factories in Germany by canceling the job protection program that has been in place since 1994. As part of the so-called cost-cutting procedure, the agreement, which would have prohibited forced layoffs at the company group until 2029, was terminated. It has since turned out that Oliver Blume The VW leader wouldn’t even shy away from a 30,000-person downsizing.

– says the announcement of the board of directors. They add: they do not see the solution to preserving and increasing competitiveness in regional-based reorganization either.

Would the layoff lead to a pay rise?

In response to all this, the head of the works council, Daniela Cavallo announced firm opposition and said: “the plan is an attack on our jobs, sites and collective agreements. (…) In fact, negotiations and compromise are needed. Otherwise, if VW actually forces layoffs from the summer of 2025, it will have to count on a huge increase in costs for the remaining workforce,” the works council’s article states.

The job protection program has been suspended in exactly six German plants according to this, if the company management and the trade union do not reach an agreement by next June, the pre-1994 employment contracts will automatically come into force, which would, according to the current situation, bring significant wage increases to the employees of the factories. Especially since, based on the contracts before 1994, the employees are also entitled to extra holidays, Christmas bonus and extra overtime pay.

A according to recent news the Volkswagen Group CEO now expects union leaders to come up with proposals to cut costs and close the gap with competitors. All this before the negotiations on plant closures and new wage agreements, which begin on Wednesday, September 25. You can already know for sure that the trade union side is radically opposed to the planned plant closures.

„Volkswagen releases are too high compared to the international competition: labor costs in Germany are double the European level” – stated Oliver Blume to the German RTL, who also spoke about the fact that the concern will examine all means in the coming weeks regarding the reduction of development, material, fixed, manufacturing and retail costs. The goal is to conclude a broad agreement on investments and labor agreements this year.

Politics gets involved, but he doesn’t even want to hear about a scrap premium

The statements of the CEO of VW were made after the Robert Habeck to the “automotive summit” convened by the German Federal Minister of Economy to discuss the current crisis situation of the German automobile industry with the most important players in the market. After the meeting, the head of the ministry announced: the parties of the coalition are trying to overcome their differences in the matter in order to find a solution to stabilize the country’s struggling car factories.

Christian LindneMinister of Finance r has already indicated that he does not consider it likely that he would support the proposal of Chancellor Olaf Scholz and his party, the SPD, that re-introduce the so-called scrap premiumaccording to which the state will pay more than 6,000 euros to motorists who agree to replace their existing internal combustion engine-powered car with an electric one. “I don’t want to focus on other parties’ proposals right now,” Linder said.

According to press reports, the Volkswagen concern will campaign for the state to support the purchase of new, purely electric cars with 4,000 euros in the future, for which the manufacturer is offering a 2,000-euro price reduction.

So it seems that for the time being, the German leadership’s intention to help VW and its peers exists only in words and not in concrete actions. You do this Robert Habeck also indicated to the industry players that, according to him, lightning-fast measures should not be taken, long-term planning is needed instead, therefore the dialogue started with the market players will continue. However, the minister promised to gradually tighten the regulations on CO₂ emissions.

Above all, Oliver Blume justified the new, austere direction taken by management with the deteriorating automotive market environment. While it’s not just Volkswagen, the entire German auto industry has been producing poor sales figures for some time, mostly because they are unable to manage the price of the electric transition. While VW reported a 14 percent lower profit in the first half, BMW’s profit fell by nearly 15 percent, and Mercedes’s by almost 16 percent.

In the meantime, the crisis is also affecting automotive suppliers, who have to deal with the entry of new competitors into Europe. August new car sales in key markets France, Germany, Italy and Spain saw double-digit year-on-year declines, according to a Goldman Sachs analyst. The annual sales rate of the four countries fell by 16.7 percent, reflecting the difficult European economic environment.

What factors are causing the crisis in the German car industry?

• Germany is increasingly lagging behind in terms of competitiveness.
• Volkswagen has been struggling with high costs for years, and in terms of profitability, it lags far behind the group’s brands such as Skoda, Seat and Audi.
• However, the current weak development of new orders has worsened the situation.
• The auto industry has been rocked by a drop in demand for electric cars after governments, including Germany, cut financial incentives.
• BMW and Mercedes have issued profit warnings in recent weeks, partly due to a drop in Chinese demand.
• The push and business success of Chinese competitors, with which they are ripping off an ever-larger slice of the market pie.
• European automakers all have a shrinking share of electric vehicle sales.
• China’s BYD increased its market share from 14.7 percent in the second quarter of 2023 to 17.2 percent by July 2024, consolidating its position as the global leader in electric vehicles and dethroning Tesla at the same time.
• For example, Stellantis’ market share dropped from 4.0 percent a year ago to 2.7 percent in July, Volkswagen’s from 7.5 percent to 6.6 percent, while Mercedes-Benz’s share shrank to only 1.9 percent.
• Electric vehicles still have a high cost compared to internal combustion vehicles.
• Despite having lower long-term running costs, the initial purchase price of electric cars, even after government subsidies, is about 20 percent higher than their internal combustion engine counterparts in major markets such as Germany and France.

• In addition to all this, there is still a kind of customer distrust of electric vehicles, whether they really prove to be a good investment in the long term.