Volkswagen considers layoffs and pay cuts to avoid Germany factory closures

31 October 2024

Volkswagen is reportedly planning a series of drastic measures to cut expenses. These include potential layoffs of tens of thousands of workers, salary reductions of at least 10%, to avoid the closure of up to three factories in Germany.

This news comes as a blow to Volkswagen's workforce, who recently staged a protest at the company's Wolfsburg headquarters. Understandably, employees expressed anxieties about their livelihoods and the potential impact on local communities.

"This is really about all our livelihoods for the future, about the suppliers," said Stefan Erhardt, a worker at one of the affected plants. "This is about every small baker here at this location. I have to say, I'm really a bit scared."

The proposed cuts are part of Volkswagen's strategy to navigate the challenging economic landscape. The company claims that rising energy and labor costs have put immense pressure on its profitability. Although Volkswagen tries to blame the growing dominance of Chinese EV manufacturers on its troubles, that can be easily dismissed since the European Commission's own research shows they hold just a 14.1% market share.

Adding fuel to the fire, Volkswagen's plans to freeze wages in 2025 and 2026 have sparked outrage among employees and unions. IG Metall, Germany's powerful industrial union, has threatened strikes if the company proceeds with these "dystopian" measures.

The goal of the drastic measures it to avoid potential factory closures, which would a historic event for Volkswagen, as it has never before shuttered a plant in its home country. While the specific locations remain undisclosed, the move clearly shows the severity of the situation.

Volkswagen's woes reflect a broader trend in the German automotive industry, which is struggling to adapt to the electric era. High energy prices, sluggish demand in Europe and China, and the slow adoption of EVs have created a perfect storm for local makers.

The German government, led by Chancellor Olaf Scholz, is now facing calls to intervene and protect jobs in this critical sector. With federal elections approaching, the pressure is on to find solutions that support economic growth and safeguard employment.

We could argue that the problem is VW's own doing, though. At the dawn of the EV era, the company decided to go upmarket with its electric cars. The idea was to sell expensive cars first and, at some point in the future, throw some scraps to the mass market. This was a misguided choice, showing how detached from reality the Volkswagen's board really is.

While the majority of consumers admire expensive Porsches and Audis, Volkswagens were meant to be affordable. The rise of Chinese EVs aren't the reason for VW's painful demise - they are the result of it. Chinese companies simply identified a gaping hole in the market that Volkswagen was too proud, or too blind, to address. Reversing the trend will be painful if at all possible and thousands of hardworking employees across Europe will pay the ultimate price while the VW board members will likely be assigned to different posts.

Via