Volkswagen boss signals layoffs and plant closures to tackle costs

As labor tensions grow, Volkswagen's brand chief Thomas Schaefer warned there will be unavoidable lay offs and closures of plants as part of the carmaker's drive to slash 4 billion euros (USD 4.2 billion) in costs. Speaking to online daily Welt am Sonntag, Schaefer recalled that drastic measures are needed to bring down overcapacity and soaring costs.

His comments are made as talks with unions continue, which have threatened strikes from December. The standoff intensified on Monday as union representatives demanded solutions that would prevent closures and see large-scale job cuts.

Schaefer said any solution must deal with overcapacity and costs. "We can't just take temporary fixes and hope that will work." "Otherwise, waiting to do the restructuring will only make things worse."

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Schaefer declined to disclose the number of job cuts, but said natural attrition and early retirements might help lessen them a bit. But he stressed that such measures would not be enough, and that the restructuring process needed to be accelerated over the next three to four years rather than dragged out until 2035.

Still, Volkswagen has also proposed a 10 percent pay cut for its German core workforce, an idea that has only helped fuel union opposition. That labor costs in Germany are almost twice as high as at Volkswagen plants in southern and eastern Europe makes domestic units less competitive, Schaefer said.

Previous savings have already helped the company rake in a 7.5 billion euros boost to profits, though it's now targeting USD 6 billion more. Schaefer also predicted it would be a long time before European demand recovered, suggesting urgent need for cost cutting measures.

And he also hinted that both vehicle manufacturing plants and component sites in Germany could be affected by closures.

Volkswagen's restructuring plans reflect broader challenges facing the automotive industry as it grapples with evolving market dynamics, including a shift to electric vehicles and mounting cost pressures. However, the standoff with unions signals a rocky road ahead for one of Europe’s largest carmakers.