Volkswagen Group, the root of Germany’s automobile manufacturing empire, is reportedly considering closing its domestic plants for the first time in its 87-year history. This is because the rise of Chinese electric vehicles and the energy crisis caused by the war in Ukraine have made cost reductions more urgent.
Volkswagen has only closed one plant in Westmoreland, USA, 36 years ago. In Germany, it has never closed a plant since its founding in 1937. Volkswagen, which entered the Chinese market early and dominated the Chinese car market, is now suffering from a ‘counterattack’ by mature Chinese cars.
● Volkswagen, the world’s second largest, is cutting costs
According to German economic newspaper Handelsblatt and others on the 2nd (local time), Oliver Blume, CEO of Volkswagen Group, issued a statement that day saying, “The automobile industry is in a very difficult and serious situation,” and “We will have to go through a comprehensive restructuring. Plant closures cannot be ruled out anymore.”
The Volkswagen Group, which has six plants in Germany alone, including Wolfsburg, Braunschweig, and Salzgitter, is reportedly considering closing one finished vehicle plant and one parts plant. Management announced a restructuring plan, saying it would end the “employment security agreement” that guarantees the employment status of all employees until 2029. As of the end of last year, the Volkswagen Group had 684,025 employees worldwide, of which 298,687 (43.7%) work in Germany.
Local media outlet Der Spiegel estimated that if this measure is implemented, about 20,000 local jobs could be lost. The unions strongly opposed it. Daniela Cavallo, the head of the works council, sharply criticized it, saying, “Management has questioned the decades-long agreement that profitability and job security are on equal footing,” and “It is an attack on our jobs, workplaces and collective agreements.”
● German automobiles in crisis – China’s expansion into overseas markets
The fact that Volkswagen, a symbol of labor-management harmony and job security, has announced a major restructuring shows the considerable sense of crisis the company is facing. In the Chinese automobile market, where Volkswagen had maintained the top spot in sales for the past 15 years, it fell to second place last year, pushed down by the Chinese domestic electric vehicle brand BYD. Chinese electric vehicles, after undermining Volkswagen in the Chinese market, are expanding their influence into mainland Europe. The market share of Chinese electric vehicles in Europe increased by 18.8 percentage points from 2.9% in 2020 to 21.7% last year.
In addition, the difficult manufacturing environment in Germany, where the mother factory (core production facility) is located, also acted as a burden on the company. In addition to rising energy costs after the Ukraine War, the real wage increase rate in the first quarter (January to March) compared to the same period last year was 3.8%, the highest ever in Germany, and the company is under continuous cost pressure. CEO Blume also said, “As the home of manufacturing, Germany is falling further behind in terms of competitiveness.”
Accordingly, Volkswagen is struggling, with its operating profit margin falling from 9.7% in the first half of 2022 (January to June) to 6.3% this year. Audi, a subsidiary of the group, also announced that it would consider stopping production of the electric sports utility vehicle (SUV) Q8 e-tron in July and closing the Brussels, Belgium plant where the model is made in order to cut costs.
Lee Hang-gu, head of the Automotive Convergence Technology Institute, analyzed, “Following the primary cause of increased production costs in Germany, competition with low-cost electric vehicles from China served as a trigger for this restructuring policy.”
Reporter Kim Jae-hyung [email protected]
Reporter Han Jae-hee [email protected]
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2024-09-04 09:24:35