Volkswagen, one of the world’s largest car manufacturers, is contemplating the closure of some of its factories in Germany for the first time in its 87-year history. This move is part of a broader strategy to cut costs amid increasing competition from China’s electric vehicle (EV) makers.
The German automaker announced on Monday that it cannot rule out the possibility of closing plants in its home country. Among other measures to “future-proof” the company, Volkswagen is also considering terminating an employment protection agreement with labor unions that has been in place since 1994.
“The European automotive industry is in a very demanding and serious situation,” said Volkswagen Group CEO Oliver Blume. “The economic environment has become even tougher, and new competitors are entering the European market. Germany in particular, as a manufacturing location, is falling further behind in terms of competitiveness.”
Volkswagen began a €10 billion ($11.1 billion) cost-cutting initiative late last year but is still facing challenges, especially in China, its largest market. In the first half of this year, vehicle deliveries in China fell by 7% compared to the same period in 2023, and the company’s operating profit dropped by 11.4% to €10.1 billion ($11.2 billion).
The company’s struggle in China is largely due to competition from local EV brands such as BYD, which also pose a growing threat to Volkswagen’s market share in Europe.
“Our main focus is cost reduction,” Blume explained during an earnings call with analysts last month. “We have made all the necessary organizational adjustments, and now it’s all about cutting costs wherever we can,” he added.
Despite these efforts, Volkswagen’s plans to cut costs will likely face strong resistance from labor unions, which control nearly half of the seats on the company’s supervisory board.
On Monday, IG Metall, one of Germany’s most powerful unions, blamed the company’s current challenges on poor management and pledged to defend jobs.
“Today, the board presented an irresponsible plan that shakes the very foundations of Volkswagen, massively threatening jobs and locations,” said IG Metall’s lead negotiator, Thorsten Groeger, in a statement. “This approach is not only short-sighted but also highly dangerous — it risks destroying the heart of Volkswagen… We will not tolerate plans that the company makes at the expense of the workforce.”
Volkswagen currently employs around 683,000 people worldwide, with approximately 295,000 of them based in Germany.
Thomas Schaefer, CEO of Volkswagen passenger cars, reiterated the company’s commitment to Germany “as a business location” and announced plans to hold urgent talks with employee representatives to explore options for “sustainably restructuring the brand.”
“The situation is extremely tense and cannot be resolved through simple cost-cutting measures,” the company said.