Volkswagen weighs German plant closures amid cost-cutting pressures

Volkswagen is facing increasing pressure to reduce costs due to increased competition from Asian carmakers, prompting the company to consider closing factories in Germany for the first time.

This potential move marks the first major conflict between Chief Executive Oliver Blume, seen by analysts as more of a consensus builder than his frequently combative predecessor, Herbert Diess, and the powerful unions at Volkswagen. The company's plans have faced strong opposition from unions, particularly the influential IG Metall, which has vowed to resist any closures.

The company's works council has identified one major vehicle plant and one component factory in Germany as potentially obsolete, while Volkswagen's Chief Financial Officer Arno Antlitz and brand chief Thomas Schaefer are set to discuss the matter with staff at an upcoming works council meeting.

The head of Volkswagen's works council, Daniela Cavallo, expects tough negotiations, indicating that the meeting could be particularly challenging for management. Volkswagen's past attempts at restructuring, such as those led by Diess in 2022, were blocked by IG Metall, the largest and most influential industrial union in Germany.

Analysts have speculated that Volkswagen plants in Osnabrueck and Dresden might be targeted for closure. Meanwhile, Lower Saxony, Volkswagen's second-largest shareholder, has backed the company's review process.

The company, which employs around 680,000 people, has also indicated that it may have to end its long-standing job security program that has protected jobs since 1994 and prevents job cuts until 2029. This program, which covers several Volkswagen plants, is currently under discussion with the works council.

Schaefer has said that the situation is highly tense and cannot be addressed with simple cost-cutting measures alone. The Volkswagen brand is the first to undergo a major cost-cutting initiative, aiming to save 10 billion euros ($11 million) by 2026 to better position itself for the transition to electric vehicles.

CEO Blume stressed the need for further action due to economic challenges, rising competition in Europe, and the declining competitiveness of the German economy. Volkswagen's stock has fallen nearly a third over the past five years, as the company faces growing pressure in Europe, the U.S. and China, where local EV makers like BYD are swiftly gaining market share.

(With input from Reuters)