Volkswagen plans restructuring amid high costs and declining demand

German automaker Volkswagen intends to restructure its business amid high operating costs, declining demand and increased competition from Chinese manufacturers, Reuters reports.

The company plans to close at least three plants in Germany and lay off tens of thousands of employees, according to Daniela Cavallo, chairman of Volkswagen’s Works Council, speaking at the VW plant in Wolfsburg. In addition, employees face salary cuts and wage freezes in 2025 and 2026.

“Management is absolutely serious about all this. This is not sabre-rattling in the collective bargaining round,” she said.

Cavallo believes that Berlin urgently needs to develop a master plan for German industry to guarantee its survival. The government representative noted that the government is aware of Volkswagen’s difficulties and maintains a close dialogue with the company and employee representatives. VW currently has 10 plants and 300,000 employees in Germany.

On October 30, the automaker will make proposals to reduce labor costs when the second round of wage negotiations between employees and the company takes place. In addition, an interim report on the third quarter results will be published.

According to Gunnar Kilian, Member of the Board of Management of Volkswagen Group, the situation is serious and the responsibility of the parties in the negotiations is great. He noted that without comprehensive measures to restore competitiveness, the company will not be able to afford the necessary investments in the future.

Thomas Schaefer, who heads the Volkswagen brand division, said that German plants are not productive enough and operate 25-50% above planned costs. This means that some sites are twice as expensive as competitors.

The company is currently facing severe pressure from high energy and labor costs, fierce competition from Asia, weakening demand in Europe and China, and a slower-than-expected transition to electric vehicles. The Volkswagen situation also creates additional challenges for the German government, which is looking for ways to revive the economy.

In mid-October, four German states – the regions where Volkswagen operates – expressed a joint position on cooperation to ensure that the automaker does not close any of its plants. The ministries of economy of Lower Saxony, Saxony, Hesse and Berlin stated that the main goal is to fully preserve all facilities.

In September, Volkswagen lowered its forecast for the current fiscal year for the second time in three months. In addition, last week, the Financial Times reports, Mercedes-Benz and Porsche promised to step up cost cuts as the German automakers reported a sharp decline in quarterly profits due to falling demand in China.

Mercedes-Benz has already lowered its annual profit target twice in the last three months, and most other major European automakers are also experiencing difficulties. Porsche’s CFO Lutz Meschke noted that the company is reviewing its product line and ecosystem, budgets, and financial position.

The automotive industry purchases about 17% of steel in the EU, and the problems of the sector are reflected in European steelmakers.

As GMK Center reported earlier, Germany is discussing a new economic stimulus plan. Proposals submitted by the Minister of Economy include the creation of a fund to encourage investment.