Volkswagen considers closing German plants amidst cost-cutting drive, sparking concern

Volkswagen is mulling the shutdown of factories in Germany for the first time in the German car giant’s 87-year history. The closures are a part of overall plans to achieve the required 10 billion euros (USD 11 billion) of measures necessary to keep the businesses competitive where markets are shrinking.

Again during a meeting with employees on Wednesday, the CEO of the Volkswagen Company, Oliver Blume also revealed that this company might stop giving protective job commitments and rights and might end employment security until 2029. This has caused anger among the representatives of the workers and concerns among German politicians.

Management at Volkswagen has admitted that the main brand of the car manufacturing firm, Volkswagen Passenger Cars, is behind target on the cost reduction agenda. The company has primarily relied on retirements and voluntary early exit schemes to downsize in Germany, and it has not achieved the level of downsizing it desired. Large sections of the European car market have contracted since the pandemic, meaning that Volkswagen has too much production capacity and must bear the costs of idle assembly lines.

To the 25,000 VW workers at the company’s Wolfsburg base, CFO Arno Antlitz had this to say: “Automobile consumption in Europe is down to 9 million units from 11 million units in 2019,” he said. “As Volkswagen controls about a quarter of the European market, this means there is an inability to produce 500,000 cars, roughly the size of two plants.

The Volkswagen Group that boasts of some brands including SEAT, Skoda, and Porsche has recorded an operating profit of 10. 1 billion euros in the first half of this year and is down by 11 percent from the same period last year. undefined 6% increase in sales to 158.8 billion euros, it incurred increased costs, and experienced weak demand from customers.

The core Volkswagen brand recorded a 68% drop in earnings for the second quarter, with a profit margin plummeting to just 0.9%. Rising costs, including increased wages, and sluggish sales of electric vehicles, compounded by the rise of competitively priced Chinese competitors, have exacerbated the financial strain.

The company’s push to reduce costs is currently centered on its core brand and its workforce in Germany, highlighting the broader challenges Volkswagen faces in navigating a rapidly evolving automotive landscape.