In 87 years of history, it would be the first time. Monday 28 October Volkswagenthe German car giant and leading manufacturer in Europe, has a hypothesis at the three factories in Germany were closedwith the consequential cuts of thousands of jobs and salaries, in response to the current crisis. There was a big protest from unions and workers, who announced a strong mobilization throughout the country.
Volkswagen employs more than 120 thousand people in Germany, and about half of those work in Wolfsburg. The brand operates ten factories: six in Lower Saxony, three in Saxony and one in Hesse. In September the German automaker announced the cancel the job security program in existence for over 30 years. Layoffs will be possible from mid-2025.
What Volkswagen intends to do
The president of Volkswagen’s global works council gave the news Daniela Cavalloafter two days of meetings with the company’s management. “The board of management wants to close at least three factories in Germany,” he said during an information event for the workforce in Wolfsburg: “With these plans, thousands of jobs are at risk“.
The group’s goal is to save a total of four billion euros. In addition to the three closures, Cavallo added, the company would intend to “reduce the capacity of the remaining seven factories and divest or move some production departments abroad“. Finally, the company would be willing to cut the company’s salary amount by 10 percent across the board and grant no raises in 2025 and 2026.
Company incentives
“The situation is serious, at the moment we don’t earn enough from our cars,” explained the CEO Thomas Schäferalthough the hypothetical measures are not detailed: “At the same time Our energy, material and personnel costs continued to increase. Without comprehensive measures to regain competitiveness, we will not be able to make essential investments for the future.”
The objective is to increase profitability, ie an operating margin of 6.5 percent by 2026 (at the end of the first half of 2024 it was 2.3). “We are not productive enough at our German sites and factory costs are up to 50 percent higher than we planned,” Schäfer said: “This means Individual factories cost twice as much as the competition. We need to find a common and sustainable solution for the future of the company.”
The reaction of Ig Metall and the government
“A stab deep in the heart”: this is the first comment from the district director of Ig Metall Thorsten Groger: “The company and the board of directors describe concepts that can be achieved in the future at the negotiating table, where so far they have presented little more than empty phrases. If the leadership wants to declare Germany’s swan song, it must expect resistance that it cannot imagine.”
For the head of Ig Metall “these aggressive plans of the board of directors are in no way acceptable and are break with all that we have experienced in the company for the past two decades”.
Even the chancellor Olaf Scholz took a position on the matter. Government spokesman Wolfgang Büchner said: “We know that Volkswagen is in trouble. The Chancellor’s position on this is clear: no bad management decisions from the past they cannot come at the expense of the employees. Now the question is to preserve and guarantee jobs.”
Interview between Time.news Editor and Dr. Linda Schneider, Economic Analyst specializing in the Automotive Industry
Time.news Editor: Welcome, Dr. Schneider. Thank you for joining us today. The recent announcement from Volkswagen regarding potential factory closures and job cuts has sent shockwaves through the industry. Can you provide us with your perspective on the implications of this decision?
Dr. Schneider: Thank you for having me. The news indeed is significant, especially since it’s the first time Volkswagen is considering such drastic measures in its 87-year history. Closing three factories and cutting thousands of jobs not only impacts the employees and their families but also the local economies dependent on these jobs. This move is a clear indication of the mounting pressure on traditional automakers as they struggle against rising costs and shifting market demands.
Time.news Editor: Speaking of pressures, Volkswagen’s CEO Thomas Schäfer mentioned a shortfall in revenue from their vehicles. What factors do you think are contributing to this?
Dr. Schneider: There are several factors at play here. First, the automotive industry is experiencing a transformation towards electric vehicles (EVs), which requires significant investment in new technologies and manufacturing processes. As a consequence, traditional combustion engine vehicles are facing declining demand. Additionally, rising costs for materials and energy—exacerbated by global economic conditions—are squeezing profit margins further. All of this creates a challenging environment for companies like Volkswagen.
Time.news Editor: The announcement stated that Volkswagen intends to save around four billion euros through these measures. Do you think this is a sustainable strategy for the company?
Dr. Schneider: While cutting costs is a common strategy in times of crisis, it’s not a foolproof long-term solution. Slashing jobs and reassessing production capabilities may offer short-term relief, but it could also hinder innovation and employee morale in the long run. For Volkswagen to emerge as a leader in the future automotive market—especially in EVs—they will need to invest in new technologies and retain skilled employees rather than primarily focus on cutbacks.
Time.news Editor: That’s an interesting point. You mentioned innovation. Given the current climate, how should companies like Volkswagen balance cost-cutting with the need to innovate?
Dr. Schneider: It’s a delicate balance. Companies need to focus on optimizing their operations without stifling innovation. This might mean investing in research and development, training programs for employees, and partnerships with tech startups to bolster their capabilities in emerging technologies. It’s crucial for the sustainability and long-term growth of any automaker to not only survive the current crisis but also positioning themselves for future success.
Time.news Editor: The unions and workers have already begun mobilizing against these proposed cuts. How do you think this will impact Volkswagen’s negotiation strategies moving forward?
Dr. Schneider: Labor unions hold considerable power, especially when they can rally worker support across various plants. Volkswagen will need to navigate these negotiations carefully; ignoring worker sentiments could lead to significant unrest and further damage to their public image. It’s essential for the company to engage in constructive dialogue with the unions, possibly exploring alternatives to layoffs or wage cuts, like workforce retraining or temporary furloughs.
Time.news Editor: what do you think the broader impact of these changes could be on the German automotive sector as a whole?
Dr. Schneider: Volkswagen is one of the largest employers in the German automotive sector; its decisions thus have a ripple effect. If Volkswagen initiates widespread layoffs and factory closures, it could prompt other automakers to take similar actions, creating a domino effect across the industry. There’s also the potential for increased tensions in labor relations across the sector, especially as other companies may feel pressure to streamline operations in response to Volkswagen’s strategy.
Time.news Editor: Thank you, Dr. Schneider. Your insights on this critical issue are invaluable. We hope to continue following this story as it evolves.
Dr. Schneider: Thank you for having me. It’s a critical time for the automotive industry, and I look forward to sharing more insights as developments unfold.
