Monday, October 28, 2024

Volkswagen's labour chief warns of mass layoffs, plant closures in Germany

Reuters
Updated Mon 28 October 2024


Workers of Europe's largest carmaker Volkswagen AG gather during a briefing, in Wolfsburg

LONDON (Reuters) -Volkswagen plans to shut at least three factories in Germany, lay off tens of thousands of staff and shrink its remaining plants in Europe's biggest economy as it plots a deeper-than-expected overhaul, the carmaker's works council head said on Monday.



Here are some statements and comments in reaction to the news:

VOLKSWAGEN BRAND CEO THOMAS SCHAEFER:


"We are not earning enough money with our cars currently. At the same time, our costs for energy, materials and personnel have continued to rise. This calculation cannot work in the long term.

"So we have to get to the root of the problem: we are not productive enough at our German sites and our factory costs are currently 25-50% higher than we had planned. This means that individual German plants are twice as expensive as the competition.

"In addition, we at Volkswagen are still processing many tasks internally that the competition has already outsourced more cost effectively. This means that we cannot continue as before. We must quickly find a joint and sustainable solution for the future of our company."

GERMAN GOVERNMENT SPOKESPERSON:

“It is well known that Volkswagen is in a difficult situation. (...) The Chancellor's position on this is clear, namely that possible wrong management decisions from the past must not be at the expense of employees. It is now a matter of preserving and securing jobs."

STIFEL ANALYST DANIEL SCHWARZ:

"The plans go far beyond market expectations. I believe this reflects a unique combination of unfavourable factors: competition in China, softening of demand in Europe, especially for BEVs (battery electric vehicles), stricter regulation.

"Of course, unions will disagree with the proposed measures. However, I find encouraging that unions seems to largely agree with the analysis that VW needs to take significant action.

"I think strikes are likely: one side asks for 7% wage increase, the other side offers >10% wage cut plus factory closures.

"It will not be easy to find a compromise. It will be interesting to see whether unions will limit strikes to VW brand factories (where it might hurt VW less) or also expand this to other brands, like Porsche, where the damage would be more significant."

MATTHIAS SCHMIDT, A EUROPEAN AUTO MARKETS ANALYST:

"There is likely a lot of room for manoeuvre here. (...) Cuts are long overdue though. (Former CEO Bernd) Pischetsrieder tried to make the company more competitive two decades ago, but the unions showed him the door.

"This time cuts are more out of necessity to remain competitive rather than become more competitive, in a European market running at 2-3 millions units below pre-COVID, alongside reduced scaling benefits from its shrinking Chinese business."

MORITZ KRONENBERGER, PORTFOLIO MANAGER AT UNION INVESTMENT, WHICH OWNS SHARES IN VOLKSWAGEN:

“The tougher planned cost-cutting measures by the Volkswagen Board of Directors illustrate the challenges the group faces in the medium term. Due to the lack of volume growth in the automotive industry, the emerging competition from China and the disadvantages in Germany as a production location, the measures are clearly unavoidable.

"The unions will likely respond to potential plant closures with strikes. There is a divergence between the interests of employees and employers here, and employees will ask themselves why such drastic measures have to be taken after the record profits in 2023.”

(Reporting by ReutersCompiled by Josephine Mason and Christoph Steitz; Editing by Susan Fenton and Tomasz Janowski)


VW labour chief sounds alarm on mass layoffs and three German plant closures


Updated Mon 28 October 2024 

By Axel Schmidt, Christoph Steitz and Christina Amann

WOLFSBURG, Germany (Reuters) - Volkswagen plans to shut at least three factories in Germany, lay off tens of thousands of staff and shrink its remaining plants in Europe's biggest economy as it plots a deeper-than-expected overhaul, the company's works council head said on Monday.

Europe's biggest carmaker has been negotiating for weeks with unions over plans to revamp its business and cut costs, including considering plant closures on home soil for the first time, in a blow to Germany's industrial prowess.

Volkswagen reiterated on Monday that restructuring was needed and said it would make concrete proposals on Wednesday.

"Management is absolutely serious about all this. This is not sabre-rattling in the collective bargaining round," Daniela Cavallo, Volkswagen's works council head, told employees at the carmaker's biggest plant, in Wolfsburg, threatening to break off talks.

"This is the plan of Germany's largest industrial group to start the sell-off in its home country of Germany," Cavallo added, not specifying which plants would be affected or how many of Volkswagen Group's roughly 300,000 staff in Germany could be laid off.

Cavallo's comments mark a major escalation of a conflict between Volkswagen's workers and the management, as the company faces severe pressure from high energy and labour costs, stiff Asian competition, weakening demand in Europe and China and a slower-than-expected electric transition.

They also heap further pressure on the German government to act to revive the economy, which looks set for a second successive year of contraction with Chancellor Olaf Scholz's coalition searching for ways to spur growth. Scholz trails in the polls with federal elections due next year.

Volkswagen also plans to cut salaries at the brand by at least 10% and freeze pay in both 2025 and 2026, Cavallo said.

Thousands had gathered in Wolfsburg, where the company has been headquartered for nearly nine decades. Blowing horns and whistles, workers insisted not a single plant should shut.

Volkswagen said in a statement that it would make proposals for how to cut labour costs on Wednesday, when workers and management meet for the second round of wage talks and the carmaker releases third-quarter results.

"The situation is serious and the responsibility of the negotiating partners is enormous ... Without comprehensive measures to regain competitiveness, we will not be able to afford essential investments in the future," Volkswagen Group board member Gunnar Kilian said.

Thomas Schaefer, who heads the Volkswagen brand division, said German factories were not productive enough and were operating 25-50% above targeted costs, meaning some sites were twice as expensive compared to the competition.

Volkswagen shares were down more than 1% after the announcement. Shares of peer Mercedes Benz also fell. VW shares have lost 44% of their value over the past five years, compared with a drop of 12% for Renault and a gain of 22% for Stellantis.

"The plans go far beyond market expectations," said Daniel Schwarz, an analyst at Stifel. "I believe this reflects a unique combination of unfavourable factors: competition in China, softening of demand in Europe, especially for BEVs (battery-powered electric vehicles), stricter regulation."

Unions have immense clout at VW, where labour representatives hold half the seats on the supervisory board and are, in theory, legally entitled to hold strikes from Dec. 1 as a tool to further escalate the conflict.

Volkswagen's situation reflects a broader trend in the world's third-largest economy, which is seeing its dominance challenged by more nimble and cheaper rivals in key areas, including in the auto industry, its industrial backbone.

"If VW confirms its dystopian path on Wednesday, the board must expect the corresponding consequences on our part," the IG Metall union's negotiator Thorsten Groeger said, vowing fierce resistance.

Strikes, which had been threatened for the start of December, were now likely, Schwarz said.

Cavallo said Berlin needed to urgently come up with a masterplan for German industry to ensure it does not "go down the drain".

A government spokesperson said Berlin was aware of Volkswagen's difficulties and remained in close dialogue with the company and worker representatives.

"The Chancellor's position on this is clear, however, namely that possible wrong management decisions from the past must not be to the detriment of employees. The aim now is to maintain and secure jobs," the spokesperson told a regular briefing.

Scholz and his Finance Minister Christian Lindner are both hosting separate business summits on Tuesday while Economy Minister Robert Habeck last week floated a major plan to stimulate investment.

Industry data suggests there will be no upturn for automakers, said Moritz Kronenberger, a portfolio manager at Union Investment, which owns shares in Volkswagen.

"Significant cost-cutting measures must therefore be taken promptly before the ongoing underutilisation of the plants leads to negative cash flows."

It follows more bad news for German carmakers last week, with both Mercedes-Benz and Porsche vowing to step up cost-cutting measures after posting profit drops on a weakening Chinese market.

German carmakers also fear being caught in the crosshairs of a trade war between the European Union and China, with hefty EU tariffs on Chinese electric vehicles set to come into force this week.

"I believe that anyone who hasn't yet understood what it's all about should now really wake up," said Stefan Erhardt, an employee at another Volkswagen plant near the German city of Kassel.

"This is really about all our livelihoods for the future, about the suppliers. This is about every small baker here at this location. I have to say, I'm really a bit scared."

(Reporting by Axel Schmidt, Christina Amann, Christoph Steitz, Andrey Sychev, Rachel More; Writing by Christoph Steitz and Matthias Williams; Editing by Susan Fenton and David Evans)




Volkswagen to shut three factories, axe jobs and cut pay by 10%, says union

Deborah Cole in Berlin and Jasper Jolly
Mon 28 October 2024 

Daniela Cavallo, the chair of the General and Group Works Council at Volkswagen, speaks to workers in Wolfsburg on Monday morning.Photograph: Julian Stratenschulte/EPA


The German carmaker Volkswagen is planning to shut at least three factories in its home country, lay off thousands of workers and cut pay by 10%, according to the company’s union.

The deeper-than-expected cuts come as the company faces weak sales and slow expansion in the electric vehicle (EV) sector amid tough competition from Chinese manufacturers.

“The board wants to close at least three factories in Germany,” the works council chief, Daniela Cavallo, told employees at VW’s headquarters in Wolfsburg on Monday. Its remaining manufacturing sites will reduce capacity, she said, citing information provided by management.


As Europe’s top economy suffers a crisis in manufacturing and fears of mass unemployment, VW is aiming for a fundamental restructuring to cut costs. It had initially warned last month that it had the equivalent of two factories of extra capacity in Germany.

Redundancies are expected across the workforce, amounting to tens of thousands of jobs and whole divisions closed or sent overseas. Real-terms pay cuts could amount to as much as 18% after a two-year pay freeze, the works council said. “All German VW plants are affected by these plans,” Cavallo said. “None is safe.”

The works council said the factory in the northern city of Osnabrück, in Lower Saxony, which recently lost a major contract with Porsche, VW’s subsidiary, was threatened with closure. However, that could prove politically contentious as Lower Saxony’s government is Volkswagen’s second-largest shareholder, with 20% of voting rights. The state’s leader, Stephan Weil, last month said plant closures should not be under consideration.

Cavallo also raised the prospect of industrial action if VW did not back down. She said the company was “playing with the massive risk that everything will soon escalate here” and workers will “do what a workforce has to do when it fears for its existence”.

Car companies are complaining of falling demand in many key markets after interest rates rose in recent years after the historic lows of more than a decade that followed the global financial crisis. Germany’s traditional manufacturers, including BMW, Mercedes-Benz and Porsche, have reported falling profits as Chinese sales in particular struggle.

At the same time, incumbent carmakers such as Volkswagen are having to come up with major investments needed to switch production from petrol and diesel to battery electric, while facing Chinese rivals who enjoy lower costs. Some factories had already been switched over, but slowing growth in demand for EVs has made companies less keen to make the job-saving investments.

Volkswagen employs more than 120,000 people in Germany, about half of those in Wolfsburg.

The company, which operates 10 sites in Germany under the VW brand, sent shock waves through the country in September with an announcement that it was considering the closure of factories in Germany for the first time in its history. To return to competitiveness, it said it would abolish its 30-year-old employment protection agreement as part of an attempt to save about €10bn.

Volkswagen said in a statement on Monday that its management had been in talks with labour representatives since the middle of 2023 about how to proceed, and had made clear over the summer that the “worsening economic situation required a fundamental restructuring”.

It said management would put forward “concrete proposals to lower labour costs” at upcoming salary negotiations.

Gunnar Kilian, the head of human resources on the management board, said: “The fact is, the situation is serious and the responsibility of the negotiating partners is enormous.” He confirmed unspecified factory closures and painted a dire picture of the company’s condition.

The company said the automobile market in Europe, of which its share amounts to about a quarter, had shrunk by 2 million vehicles since 2020 while costs for energy, personnel and raw materials had grown. The sector was “stagnating and will not recover in the foreseeable future”, it said.

Volkswagen Passenger Cars’ chief executive, Thomas Schäfer, said the company’s German factories had significantly higher labour costs than the industry standard.


Volkswagen mulls closing factories in Germany for the first time and cutting thousands of jobs to reduce costs

Tom Carter
Mon 28 October 2024 


Volkswagen plans to close factories in Germany for the first time, a top union official said.


The German carmaker is under intense pressure to cut costs amid sliding sales in China.


VW has struggled to compete with Chinese EV giants such as BYD that are now expanding into Europe.

Volkswagen is planning to close factories in Germany for the first time and cut tens of thousands of jobs, the automaker's top union official said.

Daniela Cavallo, head of Volkswagen's general works council, told employees that the company was mulling the closure of at least three German plants amid intense pressure to cut costs following sliding sales and profits.

Cavallo also said Volkswagen also planned to cut salaries by 10%, freeze wages for two years, and reduce the size of the company's remaining plants in Germany, where it has about 300,000 workers.

Volkswagen did not immediately respond to a request for comment.

The plans, if enacted, are likely to trigger a bitter battle between unions and Germany's largest automaker. Unions play a close role in most companies in Europe's biggest economy, and have representatives on the board.

VW issued its second profit warning in three months in September.

The company has lost market share in China to local rivals selling cheaper EVs and hybrids, and now faces the prospect of competing with the likes of BYD as they expand into Europe.

Volkswagen is also grappling with lackluster demand in Europe. Germany-based automotive analyst Matthias Schmidt told Business Insider the company had been hit by the failure of the European car market to pick up as quickly as hoped following the pandemic.

"That is causing an over-capacity and under-utilization problem leading to the need for restructuring across European operations," said Schmidt, who added that VW's European market share was also under pressure from Tesla and Chinese automakers.

Many of Volkswagen's European rivals are also encountering similar problems as they grapple with slowing demand for EVs in Europe and rising competition abroad.

BMW and Mercedes-Benz, as well as Italian rival Stellantis, have all issued profit warnings in recent weeks, with experts telling BI that a lack of affordable options was putting consumers off EVs.

Business Insider




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