Volkswagen is canceling its commitment to no layoffs and won’t rule out closing factories in Germany

FRANKFURT, Germany (AP) — Germany’s Volkswagen says auto industry headwinds mean it can’t rule out plant closures in its home country — and it’s ditching a longstanding job protection pledge in place since 1994 that would have prevented layoffs until 2029.

“The European car industry is in a very demanding and serious situation,” said Oliver Blume, CEO of the Volkswagen Group, on Monday.

He cited new competitors entering European markets, Germany’s deteriorating position as a manufacturing location and the need to “act decisively”.

Thomas Schaefer, CEO of Volkswagen’s Passenger Cars division, said cost-cutting efforts “have paid off” but that “the headwinds have become significantly stronger.”

European automakers are facing increased competition from cheap Chinese electric cars. The company’s half-year results indicate it will miss its target of 10 billion euros in cost savings by 2026, the company said.

The talk of closures and layoffs is for the company’s flagship Volkswagen brand. The core brand saw operating income fall to 966 million euros ($1.1 billion), from 1.64 billion euros in the year-ago period.

The group also includes luxury brands Audi and Porsche, which have higher profit margins than mainstream vehicles produced by Volkswagen, as well as SEAT and Skoda.

The company has tried to cut costs through early retirements and buyouts that avoid forced layoffs, but now says those measures may not be enough. Volkswagen has around 120,000 workers in Germany.

The plant closure would be the first since its US plant in Westmoreland, Pennsylvania closed in 1988, according to the dpa news agency.

Union officials and worker representatives have attacked the idea of ​​closings or layoffs. Management’s approach is “not only short-sighted but also dangerous because it risks destroying the heart of Volkswagen,” Thorsten Groeger, VW’s chief negotiator for the industrial union IG Metall, said on the union’s website.

Top employee representative Daniela Cavallo said “management has failed… The consequence is an attack on our employees, our locations and our employment contracts. There will be no factory closings with us.”

The governor of the German region of Lower Saxony, Stephan Weil, who sits on the company’s board, agreed that the company needed to take action, but urged Volkswagen to avoid closing factories by relying on alternative cost-cutting paths: “The state government will pay special attention to this,” he said in a statement reported by the dpa news agency.