Volkswagen Considers Closing German Factories Amidst Intensified Competition
Volkswagen is contemplating the unprecedented step of shutting down its factories in Germany, marking a potential historic first for the 87-year-old automaker. The decision comes as part of a broader strategy to cut costs in response to growing competition from Chinese electric vehicle manufacturers.
In a statement released Monday, Volkswagen, one of the world’s largest car manufacturers, indicated that closing plants in its home country could be a possibility. The company is also considering ending a long-standing employment protection agreement with labor unions, which has been in place since 1994.
Volkswagen Group CEO Oliver Blume highlighted the challenging economic landscape facing the European automotive industry. “The European automotive industry is in a very demanding and serious situation,” Blume remarked. “The economic environment has become even tougher, with new competitors entering the European market. Germany, in particular, is falling further behind in terms of competitiveness.”
The company is grappling with a €10 billion ($11.1 billion) cost-cutting initiative launched late last year. Volkswagen’s market share in China, its largest market, has declined, with a 7% drop in deliveries in the first half of 2024 compared to the previous year. The group’s operating profit also fell by 11.4% to €10.1 billion ($11.2 billion).
The declining performance in China is attributed to increased competition from local electric vehicle brands like BYD, which are also posing a growing threat in the European market.
“Our main focus is on cost-cutting,” Blume stated during a recent earnings call. He emphasized the need for reductions in factory, supply chain, and labor expenses, noting that the company has completed the necessary organizational changes. “Now it is about costs, costs, and costs.”
Volkswagen’s cost-cutting plans face significant opposition from labor representatives, who hold nearly half of the seats on the company’s supervisory board. IG Metall, one of Germany’s most influential unions, criticized the proposed measures and vowed to protect jobs.
“Today’s presentation of the plan is irresponsible and threatens the very foundations of Volkswagen,” said Thorsten Groeger, IG Metall’s lead negotiator. “This approach is not only short-sighted but also highly dangerous—it risks destroying the core of Volkswagen. We will not accept plans that come at the expense of our workforce.”
Volkswagen employs around 683,000 people globally, with approximately 295,000 based in Germany. Thomas Schaefer, CEO of Volkswagen Passenger Cars, reaffirmed the company’s commitment to Germany as a business hub and indicated that discussions with employee representatives will begin urgently to explore sustainable restructuring options.
“The situation is extremely tense and cannot be resolved through simple cost-cutting measures,” Volkswagen concluded in its statement.
