VW Urges Worker Pay Cuts as It Tries to Avoid Plant Closures in Europe
Volkswagen proposes pay cuts to its plant workers represented by IG Metall union, urging cost reduction measures in the face of growing costs and loss of market share.
Union leaders have hinted in recent days that plant closures in Europe are possible in the longer term, which would represent a drastic turn of events for VW and the European auto industry.
Automakers from China have put pressure on a number of major carmakers in Europe, with hefty tariffs being one of the measures deployed by the EU to avoid greater loss of market share by its domestic industry.
Following months of rumors, the VW Group revealed a set of significant and painful cost-cutting measures designed to address a worsening economic outlook amid significant challenges in Europe. The automaker openly linked this negative outlook to the high costs of operating in Germany and in Europe as a whole, in announcing its position as part of labor negotiations with some 120,000 workers spanning Wolfsburg, Salzgitter, Braunschweig, Emden, Hanover, and Kassel plants in Germany, represented by union IG Metall.
The automaker has called for 10% worker wage cuts as part of a plan to cut labor costs in addition to restructuring the bonus system and phasing out anniversary bonuses for workers, while facing calls for a 7% pay hike by the union.
"We are very concerned about the current trend in the auto industry in Europe, and especially in Germany as a business location," said Arne Meiswinkel, chief negotiator for Volkswagen AG. "The deterioration in Volkswagen's figures for the last quarter underline, particularly for the Volkswagen brand with a margin of only 2.1%, makes this particularly clear. If we remain at this level, we will be unable to finance our future."
The automaker's call for significant pay cuts comes amid hints of the possibility of future plant closures if negative economic trends persist, and amid threats of strikes by union leaders.
Specifically, union leaders want VW to rule out plant closures as part of its cost-cutting efforts.
Third quarter results for the automaker included a 42% drop in profit, painting a worrying picture amid a slump in demand for some of the group's vehicles in a number of key markets, including China, where VW has struggled amid a rise in domestic brands.
In the EV sphere, VW now faces competition from a number of Chinese brands that have launched sales in Europe, in addition to continued competition from Tesla.
The European Union has responded to increased competition from Chinese brands on its home soil with tariffs of its own, but the effect of the measures has yet to pay dividends for its domestic auto industry. China's automakers, for their part, have been eyeing setting up production in Europe to steer around the hefty tariffs.
Volkswagen's most immediate response to industry challenges, including increased energy and raw material costs, have been fairly conventional, consisting of reductions in worker compensation while also addressing overcapacity.
"A decisive tool here will be lowering labor costs to a competitive level relative to the industry benchmark," Meiswinkel added.
But VW won't escape a plant closure in the short term, with the Audi plant in Brussels, Belgium, set to close on February 28, 2025.
The site, which has been producing the Q8 e-tron, has been on a chopping block for a few months, with Audi having looked for a buyer. The plant's location in Brussels poses its own challenges and already high costs, with Audi preferring to close the plant rather than refit it for production of another model.
Further plants could face closure in the longer term, the head of the IG Metall union hinted days ago, a result the union would like to avoid if it can be accomplished by pay cuts. VW itself has not commented on the possibility of further plant closures, avoiding the politically charged topic.
Still, the mere possibility of plant closures in Germany in the coming years have been enough to set off alarm bells in the country, as fears mount of a loss of Germany's dominance in the EU auto market.
Amid these emergency cost cutting moves, it is evident that measures other than pay cuts and tariffs will be needed if the VW Group is to improve its situation in Europe and elsewhere.
Should the EU implement heavier measures to keep its domestic industry afloat, or should it let market forces sort out this situation? Let us know what you think in the comments below.