Over the weekend, Volkswagen Group announced that it would be cutting over 35,000 jobs and scale down back production on select models. But the cutbacks aren’t happening immediately and are apparently being viewed as a victory by the Germany union because things were originally assumed to be far worse and had responded accordingly. VW has seen some of the largest labor strikes in its long history this year, with the above deal representing dozens of hours of intense negotiations.
The automaker had previously been discussing numerous factory closures in Germany, with the end goal being slowing production of lower volume products and shifting assembly into places where labor costs would be significantly less. According to Reuters, union leaders praised the final agreement as a “Christmas miracle” because VW walked back proposed wage cuts of 10 percent. Meanwhile, factory closures and layoffs are still happening — just on a longer timeline than originally planned.
With the manufacturer having already seen massive labor strikes in Europe within the last month, it presumably doesn’t want to see any more during a period where both Germany and the global automotive market look to be increasingly unstable. Maintaining wages of the existing workers is assumed to keep its labor force from revolting, buying time so that it can pursue its cost cutting elsewhere.
From Reuters:
Around 100,000 workers have already staged two separate strikes in the past month, the largest in Volkswagen’s history, protesting against cost-cutting plans.
“With the package of measures that has been agreed, the company has set a decisive course for its future in terms of costs, capacities and structures,” Volkswagen Group CEO Oliver Blume said in a statement.
“We are now back in a position to successfully shape our own destiny.”
VW said the deal would allow savings of 15 billion euros ($15.6 billion) annually in the medium term and saw no significant impact on its 2024 guidance. While there were no immediate closures, VW said it was looking into options for its Dresden plant and repurposing the Osnabrueck site, including looking for a buyer. Some production would be shifted to Mexico.
Volkswagen has been debating the issue with union representatives since the start of autumn, with the alleged concerns being lower-than-assumed demand for all-electric vehicles (right when VW was attempting to pivot toward becoming an EV manufacturer) and fears about losing market share to incoming Chinese brands. However, the Chinese auto invasion in Europe isn’t really taking place in a manner that always makes it highly visible. While there are several Chinese-baked EV brands making headlines (e.g. BYD), most of the sales are actually coming by way of historic European brands that were bought by automakers controlled by the Chinese interests.
For example, the formerly British MG has been controlled by China’s state-owned SAIC Motor since 2007 and the formerly Swedish Volvo has been owned by Chinese multinational Zhejiang Geely Holding Group since 2010. While both companies have maintained headquarters in their countries of origin, they’re effectively Chinese brands.
Meanwhile, most Western brands have begun selling vehicles priced too high for the average household to afford and already knew that they’d be sacrificing jobs to produce more EVs. Executives even used this as a way to impress investors by saying it would reduce production overhead and further broaden vehicle profit margins. IG Metall, Germany’s largest union, has predictably started to become more resistant toward electrification. Automakers have countered by saying they’ll be able to retain higher paying jobs by trying to localize EV production. But, with adoption rates lower than industry leadership had assumed, it hasn’t served to assuage any employment concerns from union members.
The cost of living has risen sharply across Europe in recent years. But Germany has arguably had it worse than many of its neighbors and is starting to see widespread civil unrest. People are likewise not buying as many cars as they used to, as pricing and wages are presently out of whack. Volkswagen has simultaneously bet big on electrification at a time when consumer interest appears to have plateaued somewhat.
As previously mentioned, the plan will be to reduce Volkswagen Group employment by more than 35,000 jobs between now and 2030 — something the automaker said would be done in a socially responsible manner and be conducted alongside a so-called “job protection plan.”
Production capacity will also be rolled back by over 730,000 units annually, which represents about 25 percent of VW total production capabilities. This is being done to address present lapses in demand and the assumed declines in demand to come. Abrupt factory closures are said to have been averted, however.
The Osnabrück facility is currently responsible for the Volkswagen T-Roc Cabrio and Arteon. But was formerly responsible for the Porsche 718, Cayenne, Tiguan, Golf Cabrio, Škoda Karoq, and several other small vehicles that have either been discontinued or moved elsewhere. Originally assumed to be shuttered or totally repurposed right away, VW has said it will soldier on until 2027.
Volkswagen’s Dresden facility, responsible for the all-electric ID.3, looks to have a different fate. Despite having always been a factory specializing in unique, lower-volume models, the automaker assumed it would see an uptick in production as consumers gravitated toward small electrics. Unfortunately, sales of the ID.3 are declining and the facility looks to be closing by the end of 2025.
Wolfsburg, VW’s largest factory (pictured below), will likewise see its own production capabilities halved. The automaker says it plans to eliminate two assembly lines from the facility and eventually have production of the Golf shifted to Mexico by 2027. There was also talk about moving Golf assembly to Poland previously. However, that no longer seems to be the plan.
Other decisions have yet to be announced. But it’s obvious that Volkswagen is going to spend the next several years making sweeping changes to the business in the hunt to free up 15 billion euros. The above won’t encompass anywhere near the 35,000 people VW wants to dump by 2030.
[Images: Volkswagen Group]
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Source: The Truth About Cars
