VW's warning on plant closures in Germany causes outcry

Volkswagen's announcement on Monday (September 2) that it is considering closing factories in Germany is unprecedented in the German automaker's 87-year history. Such plant closures were considered off the table for the Wolfsburg-based company.

To make matters even worse for the 680,000 VW employees worldwide, the management also feels forced to end its job security program which has been in place since 1994 and prevents job cuts until 2029.

Experts are already talking about a significant paradigm shift at Germany's largest industrial employer, which due to its shareholder structure has always been an enterprise controlled by the state and the Porsche family. The regional state of Lower Saxony still holds one-fifth of the company's shares and a permanent seat on the supervisory board, meaning securing jobs and factories has always been seen as matters of state interest.

VW in dire straits as savings plan falls short

That could change now that the management believes the company is in a precarious position. Last year, Volkswagen launched a cost-cutting program aimed at saving €10 billion ($11.06 billion) by 2026. However, the mass-market carmaker would need to cut an additional €4 billion, according to a report by German business daily Handelsblatt.

In a letter to employees on Monday, VW brand chief Thomas Schäfer described the situation as "extremely tense" and beyond the scope of "simple cost-cutting measures." VW Group CEO Oliver Blume added that the European automotive market is in a "highly challenging and serious situation," and that Germany has fallen behind in terms of competitiveness.

As a result, the 10 car brands within the VW Group must be comprehensively restructured, and "plant closures are no longer excluded," Blume said, adding that layoffs through early retirement and severance packages are also no longer sufficient. Therefore, VW feels "compelled to terminate the employment protection agreement that has been in place since 1994."

'Punch to the gut'

VW has not yet provided specific numbers regarding how many of the approximately 120,000 jobs in Germany might be eliminated. It hasn't also identified which locations might be closed. However, according to statements by the powerful VW works council, the management considers at least one vehicle plant and one component factory in Germany dispensable.

This could potentially include the plant in Emden, in northern Germany, where Volkswagen and the Meyer shipyard are the most important employers in the region known as East Frisia.

"The prosperity of East Frisia depends heavily on these companies. Every unionized industrial job that is lost is a punch to the gut for the entire region," the mayor of Emden, Tim Kruithoff, told DW.

The Emden mayor has the backing of labor union leaders like Thorsten Gröger, who described the VW plant closures "irresponsible plan." The head of the regional metalworkers union IG Metall told the news agency Reuters that the plan is "not only short-sighted but also highly dangerous," and would risk "destroying the heart of Volkswagen." Gröger also vowed to "fight with all our might" to preserve all sites and jobs.

The VW works council, meanwhile, is particularly enraged by VW's reluctance to clarify who might be affected and how. "This puts all German sites in the crosshairs — regardless of whether they are VW locations or subsidiaries, in western or eastern Germany," said Daniela Cavallo, head of the general works council. She announced "fierce resistance."

The beginning of the transformation of the German auto industry

Many experts, however, believe that plant closures at VW in Germany are inevitable. Helena Wisbert, director of the Center for Automotive Research (CAR) in Duisburg, Germany, thinks there's "no way around it." She told the German news magazine Spiegel on Tuesday that up until now, low capacity utilization in the plants could be offset by savings from suppliers. "That is clearly no longer enough," she added.

Moritz Schularick, president of the Kiel Institute for the World Economy, sees the announced cost-cutting measures as the beginning of a transformation in the German auto industry. He urges the German government not to intervene in struggling carmakers. "We should not stand in the way of structural change. Emerging industries are desperately looking for workers," he told the German business weekly Wirtschaftswoche.

VW's flawed ownership structure

CAR founder and director Ferdinand Dudenhöffer sees an "age-old VW problem" because the carmaker is "more like a state enterprise than a market-driven company." The problem will persist, he told DW, as long as VW's company structure remains "flawed." Along with its 20% stake and a seat on the VW board, the state of Lower Saxony was also granted a blocking minority on key decisions.

Lower Saxon State Premier Stephan Weil has already criticized VW's management, saying "the question of plant closures will not arise due to the successful use of alternatives."

Emden Mayor Tim Kruithoff, meanwhile, is confident that things will not turn out to become so dire for his town. "I am firmly convinced that the Emden plant will not be affected by a closure," he told DW, noting that VW has invested "more than one billion euros" in the factory to make it ready for "the future of electromobility."

This article was originally written in German.