VW considers closing German factories for first time

Volkswagen is considering closing factories in Germany for the first time as it pursues ways to save several billion euros in a cost-cutting drive at its namesake brand.

The carmaker, whose brands also include Skoda, Audi, Lamborghini, Bentley, Porsche and Ducati, considers one large vehicle plant and one component factory in Germany to be obsolete, its works council said. The council added that it would put up “fierce resistance” to the executive board’s plans.

Volkswagen said that it also felt forced to end its job security programme, which has been in place since 1994 and prevents job cuts until 2029, adding that all measures would be discussed with the works council. It employs about 680,000 staff.

“The situation is extremely tense and cannot be overcome by simple cost-cutting measures,” Thomas Schäfer, head of the VW brand, said.

The Volkswagen brand, which accounts for most of the carmaker’s unit sales, is the first of the group’s marques to undergo a cost-cutting drive targeting €10 billion in savings by 2026 as it attempts to streamline spending to survive the transition to electric cars.

A difficult economic environment, new competitors in Europe, and the falling competitiveness of the German economy meant the carmaker needed to do more, Oliver Blume, chief executive of Volkswagen Group, said.

The German union, IG Metall, called Volkswagen’s announcement an irresponsible decision that “shakes the foundation” of the company, which is Germany’s largest industrial employer and Europe’s top carmaker by revenue.

Stephan Weil, the premier of Lower Saxony, a Volkswagen shareholder, said it supported the management board’s initiative to further cut the carmaker’s costs and that all options alongside those laid out by the board must be considered.

“The next few weeks will probably be a time for intensive discussions not about the ‘if’, but rather about the ‘how’,” Weil added.

Carsten Brzeski, global head of macro at ING Research, argued that Volkswagen’s decision highlighted the consequences of years of economic stagnation and structural change without growth.

“If such an industrial heavyweight has to close factories, it may be the long overdue wake-up call that (Germany’s) economic policy measures need to be stepped up considerably,” he said.

Volkswagen’s plans are a further blow to Olaf Scholz, the German chancellor, whose three-way coalition suffered in regional votes on Sunday in which the far-right Alternative for Germany party top the poll in one state and come second in Saxony.