volkswagen layoffs: As Volkswagen weighs its first closure of a German auto plant, workers aren’t the only ones worried

Volkswagen is considering closing some factories in its home country for the first time in the German carmaker’s 87-year history, saying it would otherwise fail to comply. cost reduction objectives Needs to remain competitive.

Chief Executive Oliver Blume also told employees on Wednesday that the company must end a three-decade crisis. Commitment to job protection which would have banned layoffs until 2029.

The statements sparked outrage among workers’ representatives and concern among German politicians.

Here are some things you should know about the struggles of one of the world’s most famous car brands:

What is Volkswagen proposing and why? Management says the company’s core brand, which bears the company’s name, needs to achieve cost savings of €10 billion by 2026. It recently became clear that Volkswagen’s passenger car division was not in a position to do so, having resorted to retirements and voluntary redundancies to reduce staff in Germany.

Volkswagen says that because the European car market is smaller than before the coronavirus pandemic, it now has more production capacity than it needs and that maintaining underused assembly lines is expensive. Chief Financial Officer Arno Antlitz explained it to the 25,000 workers gathered at the company’s headquarters in Wolfsburg: Europeans are buying around 2 million fewer cars a year than before the pandemic in 2019, when sales reached 15.7 million. Since Volkswagen has about a quarter of the European market, that means “we are short 500,000 cars, the equivalent of about two plants,” Antlitz told the workers.

“And that has nothing to do with our products or poor sales performance. The market simply does not exist anymore,” he said.

Does Volkswagen make money? Volkswagen Groupwhose 10 brands include SEAT, Skoda, CUPRA and commercial vehicles, posted an operating profit of 10.1 billion euros ($11.2 billion) in the first half of this year, 11% less than the figure for the first half of last year.

Rising costs offset a modest 1.6 percent rise in sales to 158.8 billion euros, but they were held back by weak demand. Blume called it a “solid performance” in a “challenging environment.” Volkswagen’s luxury brands, which include Porsche, Audi and Lamborghini, are selling better than VW’s models.

So why is Volkswagen in trouble? The debate over cost-cutting is focused on the core brand and its workers in Germany. Volkswagen’s passenger car division posted a 68% drop in profits in the second quarter, and its profit margin was just 0.9%, compared with 4% in the first quarter.

One reason is that the division took the lion’s share of the €1 billion that went into severance pay and other restructuring costs. But rising costs, including those for wage increases, and slow sales of the company’s product line electric vehicles The problem is more serious. In addition, new Chinese competitors with competitive prices are increasing their share of the European market.

Volkswagen must sell more electric cars to meet ever-lower European Union emissions limits that take effect next year. But the company is seeing shrinking profit margins on such vehicles because of high battery costs and weaker demand for electric vehicles in Europe due to the withdrawal of consumer subsidies and the slow rollout of public charging stations.

Meanwhile, VW’s electric vehicles also face stiff competition in China from models made by local companies.

The world’s carmakers are in a battle for the future, spending billions of dollars to shift to lower-emission electric cars in a race to create vehicles that are competitive on price and have enough range to persuade buyers to switch. China has dozens of carmakers making electric cars at a lower price than their European equivalents. Increasingly, those cars are sold in Europe.

Profits have also fallen at German automakers BMW and Mercedes-Benz under the same pressures.

Why are VW’s proposals to cut production and employment so important in Germany? Volkswagen has ten assembly and parts plants in Germany, where 120,000 of its 684,000 workers worldwide are employed. As Europe’s largest carmaker, the company is a symbol of the country’s post-World War II economic growth and consumer prosperity.

The company has never closed a German factory. The last time VW closed a plant was in 1988 in Westmoreland, Pennsylvania; its Audi division is negotiating the closure of an underused plant in Belgium.

Far-right parties, fueled by popular disenchantment with German Chancellor Olaf Scholz’s three-party coalition government, made significant gains in elections on Sept. 1 in the states of Thuringia and Saxony, located in the former communist East Germany. National polls show the government’s approval rating at a low ebb. Plant closures are the last thing Scholz’s government needs.

The chancellor spoke to VW management and workers after news of the possible closure of the plant broke, but was careful to stress that the decision is a matter for the company and its workers.

Why has Volkswagen not already made the cost cuts that management wants? Employee representatives have a lot of influence at Volkswagen. They hold half of the seats on the board of directors. The state government, which is co-owner of the company, also has two seats on the board – together with employee representatives, the majority – and 20% of the voting rights in the company. Lower Saxony’s governor, Stephan Weil, has said that the company must tackle its costs, but should avoid closing plants.

This means that management will have to negotiate, a process that will take months.

What does the workers’ side say? Managers attending the employee meeting had to endure several minutes of booing, whistling and honking before they could begin to present a possible explanation. “We are Volkswagen, you are not,” chanted the workers.

Daniela Cavallo, chairwoman of the works council representing employees, said the committee “will not accept plant closures.” Reducing labour costs will not change Volkswagen’s financial situation, she argued.

“Volkswagen’s problem is that top management is not doing its job,” Cavallo said. “There are many other areas where the company is responsible… We have to have competitive products, we don’t have the basic models of electric cars.”