VW Plans to Close Three German Factories

Workers from Volkswagen AG take part in a rally at the company's headquarters and auto plant complex in Wolfsburg, Germany, on Oct. 28. (Liesa Johannssen/Bloomberg)

[Stay on top of transportation news: Get TTNews in your inbox.]

Volkswagen AG plans to close at least three factories in Germany as Europe’s biggest automaker tries to slash expenses to become more competitive.

Proposals to fix the struggling namesake VW brand include a 10% wage cut and shrinking all remaining sites in Germany, said works council chief and supervisory board member Daniela Cavallo.

The plans underscore the extent of the crisis at Volkswagen, which has bungled a transition to electric vehicles and lost relevance in China, where it’s losing market share to local automakers. With European car sales still around a fifth below their pre-pandemic peak, the push in Germany may be a sign of what’s in store for peers elsewhere in Europe.

VW’s plans threaten “tens of thousands” of jobs in Germany, Cavallo said Oct. 28 in a speech to VW workers in Wolfsburg. “This is starvation, a weakening in installments.”

CEO Oliver Blume has pointed to high costs at the VW brand, which is struggling with waning demand in Europe and intensifying competition from BYD Co. in China. Unionists are saying that workers are made to pay for boardroom mistakes including a botched EV shift and bad pricing policy.

The cutback plans are set to intensify a conflict with unions and deal a blow to Europe’s largest economy struggling with stagnation and facing challenges from migration and higher energy costs to budget austerity and the war in Ukraine. They kick off a contentious week for Volkswagen, which is expected to post declining sales and profit when it reports third-quarter results Oct. 30.

The cuts also include freezing wages next year and in 2026, Cavallo said, and abolishing one-off payments for workers that have stayed with the automaker for 25 and 35 years. She added that Porsche — also led by Blume — terminated its production relationship and future model planning with the Osnabrück factory.

Volkswagen declined to comment on the exact nature of the cuts, saying only that the situation is “serious” and that both sides have a responsibility to safeguard the company’s future.

“We are not productive enough at our German locations,” VW brand CEO Thomas Schäfer said, adding that factory costs are 25% to 50% above the company’s plans.

Volkswagen shares declined 1% in Frankfurt as of 12:32 pm local time. The shares are down around 18% this year.

The German automaker, which issued its second profit warning in three months in late September, is in a difficult period. While its premium brands including Audi and Porsche have been the carmaker’s biggest source of profit in recent years, they’re now struggling. Porsche AG on Oct. 25 said it’s weighing cost cuts and reviewing its model lineup after a demand slump in China hit its profits.

The announcement adds to a litany of profit warnings from European automakers. Mercedes-Benz Group AG is struggling with sagging China sales, BMW AG has been tripped up by an expensive recall, and Stellantis NV is getting hit by poor performance in the US.

Negotiations between management and labor have so far produced no results. A grace period will run out next month, with warning strikes at VW sites in Germany possible from Dec. 1.