Volkswagen to lay off tens of thousands of staff, cut salaries and close three car factories in Germany

Volkswagen plans to shut at least three factories, lay off tens of thousands of its workforce and introduce further cost-cutting measures in Germany as part of a deeper-than-expected overhaul to the business, the company’s works council head said on Monday.

Europe’s biggest car maker has been negotiating for weeks with unions over intentions to adjust its operations and slash costs as the manufacturer responds to headwinds in the motor industry.

A slowdown in uptake of electric vehicles and the emerging popularity of cheaper Chinese brands in Europe has forced the German powerhouse to consider factory closures on home soil for the first time.

Volkswagen reiterated on Monday that restructuring was needed and said it would make concrete proposals on Wednesday.

‘Management is absolutely serious about all this. This is not sabre-rattling in the collective bargaining round,’ Daniela Cavallo, Volkswagen’s works council head, told employees at the car maker’s biggest plant, in Wolfsburg, threatening to break off talks.

‘This is the plan of Germany’s largest industrial group to start the sell-off in its home country of Germany,’ Cavallo added, not specifying which plants would be affected or how many of Volkswagen Group’s staff in Germany could be laid off.

It has some 120,000 employees in the country, where it has 10 factories — six of them in the northern state of Lower Saxony. 

Volkswagen reiterated on Monday that restructuring was needed and said it would make concrete proposals on Wednesday

The car maker has warned that it faces major sector headwinds, including the increased popularity of cheaper Chinese brands in Europe

A slowdown in uptake of electric vehicles, which VW has heavily invested in, has also triggered the need for drastic cost-cutting measures

In September, the manufacturer sounded the alarm on potential plant closures, and said it must drop a job protection pledge in force since 1994 that would have barred lay-offs through to 2029.

Chief executive Oliver Blume cited new competitors entering European markets, Germany’s deteriorating position as a manufacturing location and the need to ‘act decisively’.

Among additional cost-cutting measures would be a reduction in salaries by at least 10 per cent and the introduction of a pay freeze in both 2025 and 2026.

Thousands had gathered in Wolfsburg, where the company has been headquartered for nearly nine decades.  

Blowing horns and whistles, workers insisted not a single plant should shut.

Cavallo’s comments mark a major escalation of a conflict between Volkswagen’s workers and the management, as the company also faces severe pressure from high energy and labour costs, weakening demand in Europe and China and losses triggered by a slower-than-expected EV transition.

Volkswagen said in a statement that it would make proposals for how to cut labour costs later this week, when workers and management meet for the second round of wage talks and the car maker releases third-quarter results on Wednesday.

‘The situation is serious and the responsibility of the negotiating partners is enormous… Without comprehensive measures to regain competitiveness, we will not be able to afford essential investments in the future,’ Volkswagen Group board member Gunnar Kilian said.

Thomas Schaefer, who heads the Volkswagen brand division, said German factories were not productive enough and were operating 25 to 50 per cent above targeted costs, meaning some sites were twice as expensive compared to the competition.

Volkswagen shares were down more than 1 per cent after the announcement. 

Shares of peer Mercedes Benz also fell. 

VW shares have lost 44 per cent of their value over the past five years, compared with a drop of 12 per cent for Renault and a gain of 22 per cent for Stellantis.