VW is abandoning a three-decade commitment to German jobs to cut costs

Volkswagen AG is ending job protections for Germany’s auto workers as part of its cost-cutting efforts, setting up a showdown with unions as the country’s biggest industry fights for its future.

The automaker on Tuesday canceled several agreements related to a three-decade-old pact that was supposed to protect jobs until 2029, VW said. The guarantees will effectively run out by the middle of next year.

Ending job security commitments at a company synonymous with engineering prowess signals how far behind Europe’s biggest economy has fallen in terms of competitiveness. BMW AG on Tuesday cut its profit expectations for the year after faulty brakes at German supplier Continental AG prompted a recall of 1.5 million vehicles. Last week, VW announced plans to close factories in Germany for the first time after previous cost-cutting measures faltered.

The moves are intended to “reduce costs in Germany to a competitive level,” VW HR chief Gunnar Kilian said in a statement.

VW’s main target is its underperforming eponymous car brand, whose profit margins are being squeezed amid a sharp transition to electric vehicles and a slowdown in consumer spending. European automakers are also struggling to compete with Tesla Inc. and with new entrants from China, led by BYD Co.

Discounts at VW are harder to achieve than at other companies. Half of the seats on the company’s supervisory board are held by labor representatives, and the German state of Lower Saxony – which holds a 20% stake – often joins trade union bodies. The carmaker, which employs nearly 300,000 people in Germany, last week defended its plant closure plans, saying weak car sales had left it with about two factories too many.

VW’s plans could result in unintended additional costs for the company of nearly 1 billion euros ($1.1 billion), according to Thorsten Gröger, chief negotiator of the main union IG Metall. Ending the guarantees drives higher wages under previous collective bargaining agreements, he said in a separate statement.

While VW said it was ready to start talks with labor representatives earlier than planned in the next round of negotiations, unions quickly vowed to fight the end of employment protections.

“We will put up fierce resistance to this historic attack on jobs,” said Daniela Cavallo, VW’s chief employee representative and member of the supervisory board. “With us, there will be no layoffs.”

Photo: A worker installs a door of a VW Golf on the assembly line at the Volkswagen factory in Wolfsburg. Photographer: Krisztian Bocsi/Bloomberg

Copyright 2024 Bloomberg.

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