Volkswagen is considering historic German factory closures to cut costs

By Victoria Waldersee and Christina Amann

BERLIN (Reuters) – Volkswagen is considering closing factories in Germany for the first time, in a move that shows the pressure Europe’s biggest carmaker is facing from cheap competition in Asia.

The move marks the first major clash between Chief Executive Oliver Blume, who analysts have described as more of a consensus-builder compared to his often combative predecessor Herbert Diess, and the unions that hold substantial influence at VW.

VW considers a large vehicle factory and components plant in Germany obsolete, its works council said, vowing “fierce resistance” to the executive board’s plans.

IG Metall, Germany’s most powerful union, has repeatedly thwarted management’s attempts to effect wider changes, most recently in 2022 when Diess stepped down as CEO.

Analysts have previously named VW’s sites in Osnabrueck, Lower Saxony, and Dresden, Saxony, as potential targets for closure. The state of Lower Saxony is Volkswagen’s second largest shareholder and supported its overhaul on Monday.

Volkswagen, which employs about 680,000 people, said it also felt forced to end its job security program, which has been in place since 1994 and prevents job cuts until 2029, adding that all the measures will be discussed with its works council.

“The situation is extremely tense and cannot be overcome by simple cost-cutting measures,” Volkswagen brand chief Thomas Schaefer said in a statement.

VW, which drives the majority of Volkswagen’s unit sales, is the first of its brands to undergo a cost-cutting drive targeting 10 billion euros ($11 billion) in savings by 2026 in a bid to streamline spending to survive the transition to electric cars.

A difficult economic environment, new competitors in Europe and the declining competitiveness of the German economy meant Volkswagen needed to do more, Blume told his management.

Volkswagen shares were up 2.57 percent at 1325 GMT, after rising about 1.5 percent immediately after its announcement at 1300 GMT.

The company has lost nearly a third of its stock market value over the past five years, making it the worst-performing stock among major European automakers.

“Wake Up Call”

Volkswagen, facing increasing challenges at home and abroad, has seen its market share in China, its biggest market, shrink as fast-moving Chinese rivals launch affordable consumer electric cars .

Those same Chinese automakers are now beginning to expand into Europe, putting additional pressure on Volkswagen to quickly develop cheaper electric vehicles or risk losing sales at home.

The story continues

Volkswagen’s plans mark the latest blow to German Chancellor Olaf Scholz, whose tripartite coalition was hammered Sunday in regional votes that showed major victories for the far-right Alternative for Germany party.

Carsten Brzeski, global head of macro at ING Research, said the decision highlighted the consequences of years of economic stagnation and structural change without growth.

“If such industrial heavyweights have to close factories, it could be the long-awaited wake-up call that (Germany’s) economic policy measures need to be stepped up considerably.”

Germany’s economy ministry said VW management must act responsibly in a challenging market environment for the auto industry, but declined to comment specifically on the planned cuts announced by Volkswagen on Monday.

IG Metall said the decision “shakes the foundation” of Volkswagen, which is Germany’s largest industrial employer and Europe’s largest carmaker by revenue.

Works council chief Daniella Cavallo said in an interview on Volkswagen’s intranet that its management had made “many wrong decisions” in recent years, including not investing in hybrids or being faster in developing battery electric cars at affordable prices.

Instead of closing plants, the board should reduce complexity and take advantage of synergies in Volkswagen Group’s plans, Cavallo argued, criticizing the company’s “documentation madness” and “salami-slicing tactics.”

Cavallo was referring to VW not only weighing factory closures, but also dissolving wage deals and abandoning its commitment to both job security and efficiency.

CFO Arno Antlitz will speak to staff alongside VW brand chief Thomas Schaefer at a works council meeting on Wednesday morning. Cavallo said he expects CEO Blume to be involved in the negotiations as well.

(1 USD = 0.9034 euros)

(Reporting by Victoria Waldersee and Christina Amann; Additional reporting by Rachel More, Louis van Boxel-Woolf, Rene Wagner and Nick Carey; Writing by Christoph Steitz; Editing by Rachel More and Alexander Smith)