According to Reuters on June 26th, sources familiar with the matter said that German automaker Volkswagen is considering closing four factories in Germany and reducing the number of employees by as many as 100,000 people (about one-sixth of the total global workforce). This could be the largest restructuring in the automotive industry's history.
Reports indicate that this move comes at a time when the public is facing difficulties. The company stated that due to increasing pressure from Chinese competitors, high American tariffs, and declining demand in Europe, their previous business model is no longer sustainable.
According to reports, Volkswagen CEO Oliver Brunel presented these plans to senior executives earlier this week in order to gain support for significant cost cuts. According to the plan, Volkswagen will close its factories in Hanover, Zwickau, and Emden, as well as Audi’s factory in Neckarsulm. The number of layoffs announced previously will be doubled, reaching 100,000 employees.
Reuters mentioned that this is comparable to the major restructuring that General Motors underwent on the eve of its bankruptcy in 2009, during the bankruptcy process, and in early 1990s. At that time, General Motors cut down as many as 74,000 jobs within four years and closed or put to use 21 factories.
There are also reports that Volkswagen will reduce its investments by about 15% over the next five years, to approximately 148 billion US dollars. Sources say Blume’s goal is to fundamentally restructure the company, which has a history of 89 years, including separating the core Volkswagen brand and parts business into independent entities.
In September 2024, Volkswagen held a staff meeting at its headquarters. Workers held banners in protest against the layoff plan. German media reported on this event.
The Volkswagen spokesman refused to comment on the above information and referred to it as a “confidential document”. The spokesman only said, “The entire group, including its brands and subsidiaries, must undergo profound changes.”
The Mass Automobile Workers' Union and the German Metalworking Industry Union (IG Metall) pledge to resist any such measures, and stated in a joint statement on June 26th: "If such plans are implemented, we will do our utmost to prevent them."
Additionally, the Governor of Lower Saxony in Germany stated that his state would not agree to this plan.
Currently, Volkswagen in Germany is facing competition from Chinese automakers. In China, the market share of Western large automotive manufacturers is being eroded by locally produced electric vehicles. According to ABI Research’s predictions, the market share of non-Chinese automakers will decline from 57% in 2020 to 32% in 2025. At the same time, Chinese automakers are also expanding into emerging markets and are developing rapidly in Volkswagen’s domestic market in Europe.
"In dealing with Chinese competitors, European car manufacturers have not yet made significant progress. Volkswagen has decided to increase its efforts," reported the British Financial Times on the same day. Although this is not the ultimate solution to the threats faced by the European automotive industry, it does increase the chances of success.
A rough estimate shows that this move could result in significant savings. The average annual cost per employee for the company is about 70,000 euros. Therefore, layoffs could save around 7 billion euros annually. According to Citibank’s calculations, closing the factory could further reduce capital expenditures by another 3 billion euros per year. Together, these savings amount to approximately 10 billion euros, although this figure must be adjusted for severance payments and other costs. With last year’s sales of 9 million units, this means that each vehicle could save about 1,000 euros.
Dazhong's sales in the Chinese market continue to decline. Reuters chart
This can at least reduce the cost disadvantage of European car companies compared to Chinese automakers. However, it cannot completely narrow the gap. McKinsey estimates that Chinese manufacturers produce electric vehicles at 20% to 50% lower costs than their European counterparts. Taking a Volkswagen car, which has a production cost of about 30,000 euros, as an example, this means there is at least a 6,000-euro difference per vehicle.
However, the prerequisite is that the public can successfully implement the layoff plan.
The report mentions that Volkswagen may ultimately not be able to implement the plan, and union opposition is one of the obstacles. However, Bloomberg once surprised skeptics by successfully getting the union to agree to reduce production at five German factories in 2024.
The Financial Times states that other European car manufacturers will inevitably follow Volkswagen in taking this path. If Volkswagen normalizes mass layoffs, it will be easier for other companies to follow suit. However, looking further ahead, Volkswagen’s restructuring plan is not sufficient to address the urgent issues.
On the 26th local time, Volkswagen's stock price dropped to its lowest point in 16 years, indicating that investors are skeptical about the success of this plan.
"High costs are just a facade, not the real reason," said Ingo Speich, shareholder of Volkswagen. "They haven't solved the root cause, which is weak sales. Volkswagen needs to launch products that cater to strong market demand and have appeal."
