VW to cut 35,000 German jobs and sharp capacity reductions

Volkswagen announced sweeping changes to its German operations, including more than 35,000 future job cuts and sharp capacity reductions in a last-gasp deal between Europe’s top carmaker and unions to avert mass strikes.

The agreement was hailed as a “Christmas miracle” by union leaders after 70 hours of gruelling negotiations, the longest in the company’s 87-year history, as there would be no immediate site closures or layoffs. VW also appeared to have backed away from demanding 10 per cent wage cuts.

Volkswagen has been in talks with union representatives since September over measures it says are necessary for it to compete with cheaper Chinese rivals and handle lacklustre demand in Europe and slower-than-expected adoption of electric vehicles.

Around 100,000 workers have already staged two separate strikes in the past month, the largest in Volkswagen’s history, protesting against cost-cutting plans.

“After long and intensive negotiations, the agreement is an important signal for the future viability of the Volkswagen brand,” Volkswagen Group CEO Oliver Blume said in a statement.

Volkswagen said the deal would allow savings of 15 billion euros ($15.66 billion) annually in the medium term and saw no significant impact on its 2024 guidance. While there were no immediate closures, VW said it was looking into options for its Dresden plant and repurposing the Osnabrueck site. Some production would be shifted to Mexico.

The IG Metall union said a 5 per cent wage increase agreed in November would be suspended and vehicle production would shut at the Dresden plant by the end of 2025.

Volkswagen AG’s staff will not get raises under a collective wage agreement over the next four years, while some bonuses will be scrapped or reduced.

Production at VW’s Wolfsburg plant, its biggest, will be cut to two assembly lines from four.

“No site will be closed, no one will be laid off for operational reasons and our company wage agreement will be secured for the long term,” said works council chief Daniela Cavallo.

Negotiator of the IG Metall metalworkers union Thorsten Groeger and chairwoman of the General and Group Works Council of the Volkswagen Group Daniela Cavallo hold a joint press conference following marathon talks with Europe’s largest German car manufacturer Volkswagen (VW) on December 20, 2024 in Hanover, northern Germany.

The German union IG Metall said on December 20, 2024 it had reached an agreement with Volkswagen on a cost-cutting plan that would avoid forced redundancies at Europe’s largest carmaker’s production sites in Germany.

The fifth round of negotiations has been under way since Monday and continued deep into the night at a hotel in Hanover this week, with negotiators only taking short breaks to sleep and fuel up on coffee, curried sausage and fruit.

The 35,000 future job cuts would represent a quarter of VW’s workforce and come in tandem with reducing the company’s network of German plants by more than 700,000 vehicles.

IG Metall chief negotiator Thorsten Groeger nevertheless said the cuts, which would not involve compulsory redundancies, were part of a solution to address overcapacity and would be done in a socially responsible manner.

Top shareholder Porsche SE welcomed Friday’s deal as a “significant improvement in Volkswagen’s competitiveness”.

The talks took place in a dated no-frills business hotel on the outskirts of Hanover, where delegates from both sides met in various rounds that were at times interrupted by breaks during which they stocked up on coffee and fruit well after midnight. Some workers played a round of cards to decompress.

The crisis at VW has hit at a time of uncertainty and political upheaval in Europe’s largest economy, as well as wider turmoil among the region’s automakers. The question of how to fix Germany’s sluggish growth has taken centre stage as a campaign issue ahead of a snap election in February, while Chancellor Olaf Scholz, trailing in the polls, has urged VW to keep all its factories open. Scholz on Friday night welcomed a “good, socially acceptable solution”, adding in a statement, “Despite all the hardships, it ensures that Volkswagen and its employees can look forward to a good future.”

His Vice Chancellor Robert Habeck however warned of serious changes in the offing: “Even if redundancies and factory closures have been averted, every job that is not retained is a serious loss,” he said in a separate statement.

Alexander Krueger, chief economist at Hauck Aufhaeuser Lampe Privatbank, said at first glance it appeared to be a compromise the sides can live with.

“Other companies are also pursuing job-cutting plans, and VW appears to be just the beginning,” he said. “Competitive price pressure will probably require further adjustments at a later date.”

Former Volkswagen bosses, including Herbert Diess and Bernd Pischetsrieder, failed in their attempts to make far-reaching changes to the Wolfsburg-based carmaker as the unions stood firm. A VW veteran of three decades, current boss Oliver Blume had maintained good relations with the unions.