Volkswagen considers historic plant closures amid rising costs

Volkswagen, Europe's largest automaker, is contemplating a significant restructuring that could involve closing factories in Germany for the first time in its history. This unprecedented move underscores the mounting pressure the company faces from Asian competitors and the urgent need to streamline its operations.

The decision marks a stark departure from the company's traditional approach and is likely to spark intense negotiations with unions, which hold considerable influence within Volkswagen. The works council has already vowed "fierce resistance" to the executive board's plans, which target one large vehicle plant and one component factory in Germany.

Chief Financial Officer Arno Antlitz and Volkswagen brand chief Thomas Schaefer are scheduled to address staff at a works council meeting on Wednesday morning. Daniela Cavallo, head of Volkswagen's works council and a member of the powerful IG Metall union, expects CEO Oliver Blume to also participate in the discussions, emphasising the high stakes involved.

Add WION as a Preferred Source

IG Metall has a history of successfully thwarting previous attempts at more radical changes within Volkswagen, most notably in 2022 when Herbert Diess, the company's former CEO, was forced to step down.

Analysts have speculated that Volkswagen's plants in Osnabrück and Dresden could be potential targets for closure. The state of Lower Saxony, a significant shareholder in Volkswagen, has expressed support for the company's review.

The decision to consider plant closures comes as Volkswagen faces a challenging economic environment, intensified competition from European rivals, and the declining competitiveness of the German economy. These factors have forced the company to accelerate its cost-cutting efforts, aiming to achieve 10 billion euros (USD 11 billion) in savings by 2026.

CEO Oliver Blume has emphasised the need for more decisive action, stating that Volkswagen must adapt to the changing market dynamics. The company's shares have experienced a significant decline over the past five years, underperforming its major European competitors.

The proposed plant closures are a major blow to Chancellor Olaf Scholz and his coalition government, which have already faced criticism in recent regional elections. The decision highlights the consequences of years of economic stagnation and structural changes without corresponding growth.

Carsten Brzeski, global head of macro at ING Research, warned that the closure of factories by such a prominent industrial player could serve as a wake-up call for Germany's economic policymakers. He urged the government to take more decisive action to address the country's economic challenges.

Germany's economy ministry acknowledged the difficult market environment faced by Volkswagen but declined to comment specifically on the planned cuts. IG Metall, on the other hand, has strongly criticised the decision, stating that it shakes the foundation of Volkswagen, Germany's largest industrial employer.

Daniela Cavallo argued that Volkswagen's management has made several wrong decisions in recent years, including a lack of investment in hybrid technology and a delay in developing affordable battery-electric cars. She urged the company to focus on reducing complexity and leveraging synergies across its various brands rather than resorting to plant closures.