Quake at Volkswagen Car giant staggers and plans to close plants in Germany for the first time

The Volkswagen Group is tightening its austerity measures. For the first time, plant closures in Germany are no longer ruled out. How bad is it for Europe's largest car manufacturer?

The announcement hits Germany hard: the Volkswagen Group is considering closing plants in its home country for the first time. Redundancies are also possible. An agreement between management and the General Works Council to safeguard jobs is actually valid until 2029. However, this has now been terminated by the Group management. This means that compulsory redundancies and even plant closures in Germany are no longer taboo.

The reason for the tough measures: The financial situation at Europe's largest car manufacturer Volkswagen is coming to a head. An austerity program launched in 2023 has not yet brought the hoped-for improvements. Among other things, personnel costs in administration are to be reduced by 20 percent. To date, VW has relied on partial retirement and severance payments to reduce its workforce; corresponding programs were expanded again in the spring to include severance payments for particularly long-serving employees.

However, the Group is a long way from its goal of improving earnings by ten billion euros by 2026. A tough cut is unavoidable, VW management announced after a management meeting.

Employees announce fierce resistance

According to the Board of Management, VW's core brands must be comprehensively restructured: "In the current situation, plant closures at vehicle production and component locations can no longer be ruled out without rapid countermeasures."

The trade union and works council immediately announced massive resistance. The plans are "an attack on our jobs, locations and collective agreements", explained Works Council Chairwoman Daniela Cavallo, adding that the union would put up fierce resistance. "With me, there will be no VW site closures!"

The trade unionist chose pithy words: "We don't need any short-term profit raambos. The mismanagement of recent years must not be carried out on the backs of our colleagues."

First plant closure in 30 years looms

When asked, VW has not yet given any concrete figures on how many of the 120,000 or so jobs in Germany could be lost. There was also no information on possible locations that could be closed. According to the Works Council, however, the brand's Board of Management considers at least one vehicle plant and one component factory in Germany to be dispensable.

The last closure of a production site at VW was more than 30 years ago: VW closed its factory in Westmoreland in the USA in 1988. No VW plant has ever been closed in Germany. In addition to the main plant in Wolfsburg, VW has factories at nine other locations.

"The European automotive industry is in a very challenging and serious situation. The economic environment has become even tougher," said Group CEO Oliver Blume, explaining the tough course. Costs must be reduced more than previously planned. "The headwind has become much stronger," said brand boss Thomas Schäfer according to the press release. "We therefore need to step up our game and create the conditions for long-term success."

Oversleeping the trend, competition is growing

Volkswagen has been struggling with high costs for years and lags far behind Group companies such as Skoda, Seat and Audi in terms of returns. Another key problem is the faltering ramp-up of electromobility. Volkswagen has overslept the trend towards e-cars and is lagging behind in the development of new technologies.

In addition, falling sales figures and new competition from China are causing problems for the industry in Germany as a whole. VW's group profit after tax slumped by 14 percent in the first half of the year, while Mercedes-Benz's fell by almost 16 percent. BMW earned eight percent less in the second quarter.