Volkswagen Survival Strategy: Factory Closures in Germany and Labor Union Battles

In an effort to further reduce costs in the face of growing competition from Chinese manufacturers of electric vehicles, Volkswagen is considering closing factories in Germany for the first time in its 87-year existence. One of the largest automakers in the world, the German manufacturer, stated in a statement on Monday that it could not completely rule out factory closures in its own nation. Trying to end a 1994 employment protection agreement with labor unions is one of the additional steps taken to future-proof the business.

The European automotive industry is in a very demanding and serious situation. The economic environment became even tougher, and new competitors are entering the European market. Germany in particular as a manufacturing location is falling further behind in terms of competitiveness.

Volkswagen Group CEO Oliver Blume

Volkswagen CEO Warns of Risks Amid Aggressive Cost-Cutting Strategy in China

In China, its largest market, Volkswagen is losing market share despite having started a €10 billion ($11.1 billion) cost-cutting program late last year. Over the first half of 2023, deliveries to clients in that nation decreased by 7%. Organizational operating profit fell 11.4% to $11.2 billion (€10.1 billion). A growing threat to the company’s operations in Europe, local EV brands such as BYD are causing it to lose out to regional competitors, which is why its performance in China has been so poor. “We are primarily focused on reducing costs,” Blume stated to analysts during a recent earnings call, mentioning scheduled decreases in personnel, supply chain, and manufacturing costs.

We have done all the organizational steps needed. And now it is about costs, costs and costs. This approach is not only short-sighted but also highly dangerous — it risks destroying the heart of Volkswagen… We will not tolerate plans that the company makes at the expense of the workforce.

Blume

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