Volkswagen (ETR:) is planning to close at least three factories in Germany, lay off tens of thousands of staff, and reduce the size of its remaining plants in Europe’s largest economy as part of a more extensive restructuring than initially anticipated, according to the carmaker’s works council head. The decision comes as Volkswagen aims to address its current profitability challenges and reduce costs in response to rising expenses for energy, materials, and personnel. The company’s factory costs in Germany are currently 25-50% higher than planned, making individual German plants twice as expensive as those of the competition. In addition, Volkswagen still handles many tasks internally that competitors have outsourced more efficiently, necessitating a swift and sustainable solution for the company’s future.
Volkswagen Brand CEO Thomas Schaefer acknowledged the need for change, stating that the company is not generating sufficient profits from its cars. He emphasized the importance of improving productivity at German sites and addressing the high factory costs to ensure long-term success. Schaefer highlighted the need to adapt to market demands and streamline operations to remain competitive in the industry.
Responding to the news, a German government spokesperson reiterated the importance of protecting jobs and ensuring that any restructuring decisions do not disproportionately impact employees. The government expressed support for finding a solution that safeguards employment while addressing Volkswagen’s challenges.
Stifel analyst Daniel Schwarz commented on the significance of Volkswagen’s restructuring plans, noting that they exceed market expectations due to a combination of factors such as competition in China, softening demand in Europe, particularly for battery electric vehicles, and stricter regulations. Schwarz highlighted the potential for disagreement between the company and unions over proposed measures, including wage cuts and factory closures. He anticipated possible strikes as unions seek to negotiate better terms for employees in response to the restructuring.
The analyst predicted challenges in reaching a compromise between Volkswagen and the unions, with potential strikes impacting production at various plants. The outcome of negotiations could have far-reaching implications for Volkswagen and its workforce, as both sides seek to find common ground while addressing the company’s financial challenges.