Volkswagen says headwinds from the auto industry mean the German carmaker cannot rule out plant closures in its home country, while the company is also abandoning a long-standing job protection pledge that would have banned layoffs until 2029.
“The European automotive industry is in a very demanding and serious situation,” Volkswagen Group CEO Oliver Blume said in a statement on Monday.
He cited the arrival of new competitors on European markets, the deterioration of Germany’s position as a production site and the need to “act decisively”.
According to Bloomberg News, the closure of a Volkswagen plant in Germany would be the first time the automaker, founded in 1937, has closed a factory in Germany. It would also be the first time the company has closed one of its manufacturing plants since closing its U.S. plant in Westmoreland, Pennsylvania, in 1988, news agency dpa reported.
Thomas Schaefer, CEO of Volkswagen’s passenger car division, said efforts to cut costs were “paying off” but “the headwinds have become significantly stronger.”
Chinese competition is intensifying
European carmakers are facing increased competition from cheap Chinese electric cars. Volkswagen’s half-year results indicate the automaker will miss its target of €10 billion in savings by 2026, the company said.
Talk of closures and layoffs is focused on Volkswagen, the group’s flagship brand. The brand’s operating profit fell to 966 million euros ($1.1 billion), from 1.64 billion euros in the same period last year.
The group also includes luxury brands Audi and Porsche, which have higher profit margins than mainstream vehicles made by Volkswagen, as well as SEAT and Skoda.
The group has tried to cut costs by resorting to early retirements and buyouts to avoid forced layoffs, but it now believes these measures may not be enough. Volkswagen employs some 120,000 people in Germany.
Union officials and employee representatives have sharply criticized the idea of closures or layoffs. Management’s approach is “not only short-sighted, but dangerous, because it threatens to destroy the heart of Volkswagen,” Thorsten Groeger, chief negotiator with VW for the industrial union IG Metall, said on the union’s website.
Daniela Cavallo, the main representative of the employees, declared that “the management has failed… The consequence is an attack on our employees, our sites and our collective agreements. There will be no plant closures in our country.”
The governor of the German state of Lower Saxony, Stephan Weil, who sits on the company’s board, agreed that the company needed to take action but called on Volkswagen to avoid plant closures by relying on alternative means to cut costs: “The state government will pay particular attention to this,” he said in a statement reported by the dpa news agency.
In July, the European Union decided to impose provisional tariffs on Chinese electric vehicles, but it will only levy them if negotiations with Beijing fail to reach a trade deal. The duties would amount to 17.4% on BYD cars, 19.9% on Geely cars and 37.6% on those exported by China’s state-owned SAIC. Geely’s brands include Polestar and Volvo in Sweden, while SAIC owns Britain’s MG.
In May, President Joe Biden announced tariffs of up to 100% on Chinese electric vehiclesquadrupling the current rate of 25%.
