Volkswagen says auto industry headwinds mean the German automaker can’t rule out plant closings in its home country, while the company is also dropping a longstanding job protection pledge that would have barred layoffs through 2029.
“The European automotive industry is in a very demanding and serious situation,” Oliver Blume, Volkswagen Group CEO, said in a statement Monday.
He cited new competitors entering the European markets, Germany’s deteriorating position as a manufacturing location and the need to “act decisively.”
A Volkwagen plant closure in Germany would mark the first time the automaker, which was formed in 1937, had closed a domestic factory, according to Bloomberg News. It would also be the first time the company had shuttered any of its manufacturing plants since its U.S. facility in Westmoreland, Pennsylvania, closed in 1988, the dpa news agency reported.
Thomas Schaefer, the CEO of the Volkswagen Passenger Cars division, said efforts to reduce costs were “yielding results” but that the “headwinds have become significantly stronger.”
Mounting competition from China
European automakers are facing increased competition from inexpensive Chinese electric cars. Volkswagen’s half-year results indicate it will not achieve its target for 10 billion euros ($11 billion) in cost savings by 2026, the company said.
The discussion around closures and layoffs is for the company’s core Volkswagen brand. The brand saw operating earnings sag to 966 million euros ($1.1 billion) from 1.64 billion euros in the year-earlier period.
The group also includes luxury makes Audi and Porsche, which have higher profit margins than the mass-market vehicles made by Volkswagen, as well as SEAT and Skoda.
The company has sought to cut costs through early retirements and buyouts that avoid forced layoffs, but is now saying those measures may not be enough. Volkswagen has some 120,000 workers in Germany.
Union officials and worker representatives attacked the idea of closings or layoffs. Management’s approach is “not only shortsighted, but dangerous, as it risks destroying the heart of Volkswagen,” Thorsten Groeger, chief negotiator with VW for the IG Metall industrial union, said on the union’s website.
Top employee representative Daniela Cavallo said that “management has failed… The consequence is an attack on our employees, our locations and our labor agreements. There will be no plant closings with us.”
The governor of Germany’s Lower Saxony region, Stephan Weil, who sits on the company’s board of directors, agreed the company needed to take action but called on Volkswagen to avoid plant closings by relying on alternative ways to reduce costs: “The state government will pay particularly close attention to that,” he said in a statement reported by the dpa news agency.
The European Union in July moved to impose provisional tariffs on Chinese EVs, although the EU will only collect the levies if talks with Beijing fail to yield a trade deal. The levies would consist of 17.4% on cars from BYD, 19.9% from Geely and 37.6% for vehicles exported by China’s state-owned SAIC. Geely’s brands include Polestar and Sweden’s Volvo, while SAIC owns Britain’s MG.
President Joe Biden in May announced tariffs of up to 100% on Chinese EVs, quadrupling the current tariff of 25%.
