The German engine crisis leads to a historic decision. Volkswagen, the world’s largest producer and major German leader, announced that it was increasing its stake and will close at least three factories to cut costs and increase its profitability in a really complicated context. This will not be the only decision in this direction. The company said it would also cut costs at the country’s seven other factories, cutting staff salaries by 10%. This was expressed by Daniela Cavallo, chairwoman of the works council and member of the supervisory board, in a speech at the nerve center of the automotive titan, Wolfsburg.
“Management takes this decision very seriously. This is not a collective agreement in which we create noise,” Cavallo said. Although it is a “closed plan” for “adjust the structure of Germany’s largest industrial group in their country of origin. For the moment, the company’s management has refused to assess what impact these closures will have on the workforce.“We are not very far away in analyzing the problems, but we are very far away in answering them,” the board said. Company representatives are due to meet this Wednesday with the unions to begin negotiations.
Volkswagen had already announced at the beginning of September the historic decision to close a factory on German soil, the first decision of this type in its 87-year history. Despite all this, it remained a simple plan that did not come to fruition. Today, the official announcement is much harsher than it initially appeared, as it will not be a single plant but rather a large-scale reduction. The country has a dozen factories that support the jobs of nearly 300,000 employees, This decision can therefore have a significant impact on workers.
Volkswagen’s crisis comes after intense competition from Chinese models, mixed with a drop in demand. This combination of factors, combined with higher costs and roads towards the transition to electric carsThis results in a real moment of great tension for the entire sector. These structural problems have been mixed with technical problems in other companies like Mercedes or BMW, generating double-digit stock market falls for many of these stocks between the current problems and the crisis of their business model.
It has also become embroiled in a wounded German economy, particularly in its industrial sector. The Bundesbank announced this month that it now expects a recession by 2024, generating two consecutive years of economic contraction, of 0.2% for this year and 0.3% in 2023. The German economy is increasingly affected by structural factors derived from demographic change, a more difficult competitive position and geoeconomic fragmentation.
Volkswagen notably revised downwards its forecasts for the whole year at the end of September, estimating that turnover would amount to around 320 billion and that operating profit at 18 billion. The group openly argued that this was because, in “a difficult market environment, sales did not meet expectations.” After hearing the news, the company’s shares fell 0.2% (although they started the day sharply higher) and have already fallen 18% for the year.
In any case, this latest news does not even surprise the markets. Volkswagen has been preparing the ground for a drastic option for some time. The company said at its general meeting that it expected layoffs in the near future. In his speech, Arno AntlizVolkswagen’s chief financial officer, said the company has “one or two years to change things“. The director, booed by almost 20,000 employees present at the meeting, has already warned of the problem. The German giant has two additional factories and “we must increase productivity and reduce costs”. The decision was more drastic than the forecasts of this meeting, which took place in the first days of September.
Although there are no figures or anything close to them yet, Jefferies has announced that it is making €4 billion in provisions for company layoffs. In summary, This would involve laying off 15,000 workers. These figures came when it was thought that between one and two factories would be eliminated. The idea of removing three floors may increase this number further. Volkswagen signed an agreement in 1995 according to which it could only lay off workers in 2029. The company has already started to lift this self-imposed restriction.
