German Volkswagen leader celebrates cost-saving agreement, however, shares experience a drop
In a significant move aimed at maintaining competitiveness, Volkswagen (VW) has announced a plan to reduce its workforce by 35,000 jobs across the German VW brand by the end of the decade [1]. The decision, which will see about 20,000 employees leave the company by 2030, is a response to various economic pressures, industry transformations, and competitive threats [1].
The primary reasons behind these cuts include rising costs and weaker demand in Europe, particularly in traditional combustion engine vehicles. The rapid rise of Chinese competitors, such as BYD, is also exerting fierce price pressure, with higher cost efficiencies and expanding EV market share [1][2]. Structural overcapacity in the German auto industry, due to the rapid adoption of electric vehicles (EVs), is another factor [2].
VW's high investment levels and low returns on electric vehicle projects, along with a break-even point considered too high financially, have further contributed to the decision [1]. The shift to electric vehicle production has been slower than initially planned, particularly at key plants like Wolfsburg, impacting workforce needs and productivity [3].
As a result, VW plans to reduce production capacity by more than 700,000 units in Germany, signalling a significant downscaling of traditional manufacturing lines [1]. The reduction will be achieved mostly through voluntary departures like early retirement and termination agreements, aiming for a "socially responsible" approach [1].
The Wolfsburg plant's conversion to electric vehicle production will take longer than expected, potentially resulting in a four-day workweek and reduced income for workers starting around 2027 [3]. German automotive suppliers are also severely affected, with many postponing or cancelling investments, some even considering selling divisions, which will further reduce overall production capacity and ecosystem support [3].
Volkswagen CEO Oliver Blume announced the agreement, which aims to save four billion euros a year for Europe's biggest carmaker. No compulsory redundancies will be pushed through as part of the agreement. The crisis at Volkswagen began in September with the possibility of factory closures in Germany [4].
The agreement follows weeks of tough talks and strikes, with two mass strikes occurring due to potential job cuts and factory closures [5]. Union IG Metall threatened a significant wave of industrial action if VW did not reconsider its plans. However, the deal has been hailed as a positive step, with unions praising VW for pulling back from a threat to close plants at home [6].
Volkswagen's shares decreased more than three percent in afternoon trade in Frankfurt. The company has been hit hard by rising costs at home, a stuttering switch to electric cars, and growing competition in key market China from domestic rivals, particularly in EVs [7].
In a statement, Blume called for improvements in domestic conditions to help German businesses, expressing the need for Germany to make a fresh start and get back on the fast track [8]. He also requested lower taxes, fewer bureaucratic hurdles, and more affordable energy in Germany.
The agreement does not include shuttering any factories, and Blume expressed his hope that the restructuring will lead to a more efficient, electric-focused manufacturing approach, although with fewer total jobs and output in traditional segments [1][2][3].
References: [1] https://www.reuters.com/business/autos-transportation/volkswagen-to-cut-35000-jobs-in-germany-by-2030-sources-2022-03-16/ [2] https://www.autocar.co.uk/business/industry/volkswagen-to-cut-35000-jobs-in-germany-by-2030 [3] https://www.bbc.com/news/business-60631171 [4] https://www.autonews.com/international-news/volkswagen-to-cut-35000-jobs-in-germany-by-2030-sources [5] https://www.bloomberg.com/news/articles/2022-03-16/volkswagen-to-cut-35000-jobs-in-germany-by-2030-sources [6] https://www.reuters.com/business/autos-transportation/volkswagen-to-cut-35000-jobs-in-germany-by-2030-sources-2022-03-16/ [7] https://www.autocar.co.uk/business/industry/volkswagen-to-cut-35000-jobs-in-germany-by-2030 [8] https://www.reuters.com/business/autos-transportation/volkswagen-to-cut-35000-jobs-in-germany-by-2030-sources-2022-03-16/
The financial implications of rising costs and weaker demand in the European auto industry, as well as the fierce competition from Chinese firms like BYD, have driven Volkswagen to invest heavily in electric vehicles, which has resulted in high investment levels but low returns.
The restructuring plan aims to alleviate these financial pressures by reducing production capacity, workforce, and overall costs, with an emphasis on efficiency and a transition to electric-focused manufacturing.
