Volkswagen to shutter EU plants: report

VOLKSWAGEN is threatening job cuts in Germany and warning it may shutter factories in the country for the first time.

According to a report published by Bloomberg News this week, the news comes as a “reality check” to European OEMs that current production volume cannot be maintained.

It says a third of major passenger-car production plants from Europe’s five largest OEMs – BMW, Mercedes-Benz, Stellantis, Renault, and Volkswagen – were underutilised last year (2023), producing fewer than half of the vehicles they have the capacity to build.

Were the sites to shutter, it would add to concerns that the region is facing a protracted downturn, falling further behind cheaper imports, most notably from China.

Annual sales in Europe remain below pre-pandemic levels, at approximately three-million units per annum, leaving factories unfilled and placing thousands of jobs at risk.

Volkswagen has scrapped employment guarantees in Germany that workers have enjoyed for decades, an unexpected slowdown for electric vehicles and greater competition from imported vehicles cited for the landmark decision.

“More carmakers are fighting for pieces of a smaller pie,” independent automotive industry analyst Matthias Schmidt told Bloomberg News.

“Some production plants definitely will have to go.”

The threat of factory closures in Europe has worsened in recent years as worker shortages drove up labour costs and energy expenses rose from already high levels due to the war in Ukraine.

Bloomberg News says that a failure to turn things around would “deal a blow to the region’s economy”, with the automotive industry accounting for over seven per cent of the European Union’s GDP and providing over 13 million jobs.

The situation looks especially dire in Germany, where automakers and their suppliers struggle with the shift to EVs after leading for decades on well-engineered combustion-engine cars.

On Tuesday, BMW warned that its profits will get hit because of a brake problem at parts maker Continental and tepid demand in China. Just a few hours later, Volkswagen confirmed it is ending job guarantees in Germany, setting up a lengthy clash with unions.

Last week, the company got a taste of the wrath triggered by its cutback plans, with thousands of workers shouting down managers at the Wolfsburg factory, Europe’s largest. Executives lamented flagging sales that have left it what they describe as “two plants too many”.

“Carmakers will want to retire some factories to cut costs and become more competitive. The challenge will be getting by the unions,” added Mr Schmidt.

Volkswagen’s plan for shutdowns will need to get past a supervisory board on which state politicians and labour officials hold the majority of seats.

Automotive News Europe says the scrapping of labour agreements – including a guarantee of jobs until 2029 – at six German plants raises the prospects of layoffs from as early as next year.

The moves are meant to “reduce costs in Germany to a competitive level”, said Volkswagen human resources chief Gunnar Kilian in a statement, with the main target on its underperforming namesake passenger car brand, whose “profit margins are getting squeezed amid a sputtering transition to EVs and a consumer spending slowdown”.

With Bloomberg News and Automotive News Europe