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In the pre-Christmas news lull, one of the biggest automotive
industry stories of 2024 almost went unnoticed. After weeks of
labor disputes, discussions, strikes and tensions, VW Group reached
a comprehensive cost-cutting agreement with its workforce,
represented by the Volkswagen labor union IG Metall, as well as
Works Council leaders.
The “Future of Volkswagen” Settlement: Gradual Job Cuts
but No Plant Closures
The agreement is known as “Zukunf Volkswagen” (The Future of
Volkswagen) and covers the Volkswagen passenger car brand,
Volkswagen Commercial Vehicles and Group Component operations in
Germany. The agreement will see VW shed 35,000 jobs across its
domestic operations.
However, VW's management made a significant compromise that
ensures no plants will close because of the settlement.
VW Job Cuts and Manufacturing Adjustments
VW will reduce the two vehicle brands' manufacturing capacity
from more than 1 million units per year to 734,000 units. The
35,000 job cuts will occur gradually through 2030 and will be made
in a “socially responsible” manner, which means there will be no
compulsory redundancies.
VW claims that these changes will save more than €15 billion per
year in the medium term. Of this, more than €4 billion per year
will come from labor costs, structural and production measures and
plant usage, with labor cost savings alone contributing €1.5
billion a year.
In exchange, IG Metall and the Works Council won a new job
security plan for the company's blue-collar workforce that will
last until 2030. The plan also outlines ambitions for the core VW
passenger car brand to become “the technology leader of the world's
volume manufacturers by 2030.”
A Compromise for the Future
The plan will allow VW to achieve its medium-term
return-on-sales target of 6.5%. According to VW Group CEO Oliver
Blume, “With the package of measures that has been agreed, the
company has set a decisive course for its future in terms of costs,
capacities and structures. We are now back in a position to
successfully shape our own destiny.”
The agreement appears to be a major victory for VW's Works
Council and IG Metall. It makes no mention the 10% across-the-board
pay cut or three plant closures that VW's management had sought.
The lack of plant closures in particular is a major concession, and
further adjustments are likely between now and the end of the
decade when the agreement expires.
The Zombie Plant Dilemma: What to Do with Underperforming
Plants?
The danger now is that VW's management may end up operating
facilities that are effectively “zombie” plants that have extremely
low capacity and no real purpose within the company's wider
production network.
For example, VW has yet to allocate any production to the
Dresden facility beyond the end of 2025 and is exploring a
third-party use for the plant, such as for a non-VW Group OEM
contract manufacturing facility.
Industry-wide Struggles in Europe
This scenario mirrors challenges faced by other automakers.
Audi's Brussels plant is closing next year and Ford's Saarlouis
facility in Germany is facing similar struggles. VW may be hoping
for a huge uptick in European passenger car market demand in the
next year to make its plan viable, but this seems unlikely.
The situation at the Osnabrück facility also seems overly
optimistic, particularly given the low demand for the T-Roc
convertible—a model that has always been something of a niche
proposition. With Porsche moving Boxster and Cayman production away
from the facility, this lack of demand for the T-Roc convertible
will soon force some action.
The agreement falls short of VW management's original goal to
make its German operations more competitive, especially after VW
brand head Thomas Schäfer told Reuters in November that plant
closures and layoffs were inevitable. This stance may have been a
negotiating tactic, but it also could simply reflect reality. In
2015, VW passenger car and commercial vehicle domestic production
was at 1.62 million units, but the new planned capacity of 734,000
units is less than half that figure.
The Viability of Maintaining Excess Capacity
VW now faces a tough question: even with job losses, can the
company maintain the same number of plants as a decade ago while
producing half as many vehicles? In an increasingly uncertain
market driven by intense price competition and fierce battles for
share across Europe, the answer remains unclear.
Ultimately, consolidation of VW's domestic manufacturing
footprint seems inevitable. While this latest settlement has
postponed that decision, it may be only a matter of time before the
company faces the reality of shrinking operations.
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