Volkswagen plans layoffs and pay cuts amid plant closures

Volkswagen is contemplating significant layoffs and a 10 per cent pay cut for all employees as part of its strategy to restructure operations in Germany, according to the company’s works council.

This initiative includes the potential closures of three factories and downsizing at all other German plants, raising concerns about job security for tens of thousands of workers according to a detailed report by CNBC.

Daniela Cavallo, the head of the works council, reported that management recently unveiled a plan for a wage freeze in 2025 and 2026, leading to an estimated total pay reduction of approximately 18 per cent for employees over the next few years. Additionally, workers covered by specific collective wage agreements may lose bonuses and other benefits tied to employment milestones.

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Cavallo emphasized that all Volkswagen plants in Germany would be affected, stating, “This means taking out even more products, volumes, shifts, and entire assembly lines far beyond what we have already done.” She highlighted the gravity of the situation, indicating that no facility is safe from the proposed changes.

The company’s plans have raised alarms as Volkswagen is also expected to outsource various departments to external firms or overseas locations. The works council reported that these discussions occurred separately from ongoing labour agreement negotiations, with a crucial meeting scheduled for Wednesday when Volkswagen will also release its latest quarterly earnings.

In a statement reflecting on the company's economic challenges, Volkswagen acknowledged the necessity of the restructuring to enhance competitiveness. Human resources chief Gunnar Kilian noted that without these measures, the company would struggle to make further investments.

CEO Thomas Schäfer pointed out that Volkswagen is not generating sufficient revenue from its car sales, coupled with rising energy, material, and labour costs, making German factories less competitive.

The automaker’s stock fell by 0.46 per cent on Monday, reflecting investor concerns amid broader challenges facing the automotive industry. Volkswagen has been grappling with the transition to electric vehicles and a softening global economy, leading to a reduction in its annual outlook for the second time in three months due to underperformance in its passenger car segment.

In recent weeks, Volkswagen warned of potential plant closures and announced plans to revoke several labour agreements, including those affecting specialized and temporary workers.

The company is also set to terminate an employment protection agreement established in 1994, a move met with strong resistance from the works council and the prominent German union IG Metall.

IG Metall's lead negotiator, Thorsten Gröger, criticised Volkswagen's proposals as a "stab in the heart of the hardworking VW workforce," warning of potential consequences if the company moves forward with its plans. As negotiations continue, the future of Volkswagen's workforce and operational strategy hangs in the balance.