This latest drastic cost cutting measure from Volkswagen comes amid stiff Chinese competition.
Volkswagen is apparently planning to shut at least three factories in Germany, as well as lay off tens of thousands of staff in its ongoing business restructuring efforts. A statement from its staff representatives also has stated that the automaker will be slashing the pay of its remaining staff by 10% and implementing a 2-year wage freeze, in addition to downsizing all its remaining plants as part of its business overhaul plans.
These new and severe cost-cutting measures at Volkswagen come amid stiff competition from the many up-and-coming Chinese brands, in addition to a slower-than-expected electric transition. Europe’s biggest automaker has been in talks for weeks now with its unions over its plans to revamp the business, with its workers expectedly up in arms over these proposals.
Speaking at Volkswagen’s main plant in Wolfsburg, General Works Council Chairwoman Daniela Cavallo argued that cuts couldn’t be justified if there were no certain targets to be aiming for. “For over a year now, the Board of Management has failed to provide us with the targets for the VW core brand…the Board still shows no sign of a plan for the future,” she said.
Cavallo further added that the downsizing plans will result in the outsourcing of many tasks and whole divisions to external service providers. “This is the plan of Germany’s largest industrial group to start the sell-off in its home country,” reiterated the union leader.
Those at the helm at the German automaker meanwhile pushes back in stating that these cuts are necessary to make the company “sustainably competitive”, with Volkswagen Passenger Cars CEO Thomas Schäfer stating: “We have to get to the root of the problems: we are not productive enough at our German sites and our factory costs are currently 25 to 50 percent above target. This means that some of our German plants are twice as expensive as our competitors.”
If the announced closure plans were to go ahead, this would be the first time Volkswagen has shut a factory on home soil in its 87-year history. The automaker currently has 10 plants and employs 300,000 workers in Germany.
The financial situation at the German automaker is apparently now in such a dire state that even its own financial officers recently publicly stated that the company only had ‘1 to 2 years to turn things around’. These planned cost cutting efforts also comes after Volkswagen recently issued its second profit warning in less than three months, with it to announce its third quarter financial results on Wednesday at time of writing.
This trend of drastic cost-cutting proposed by Volkswagen incidentally echoes proposals from its sister company Porsche, as well as Mercedes-Benz. Both these premium German automakers have laid out plans to step up cost-cutting measures, after posting recent profit drops on a weakening Chinese market.
New car sales in Europe are presently still well below pre-pandemic levels, with the 10+ million overall annual deliveries in the last 3 years only about 75% of the 15+ million cars shifted every year in the Old Continent before 2020. German carmakers also are fearing of being caught in the crosshairs of a brewing trade war between the European Union and China, with hefty EU tariffs on Chinese-made electric vehicles set to come into force this week.
