Volkswagen Plans Factory Closures

By Axel Schmidt and Christoph Steitz

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, according to the carmaker's works council head.

Europe's largest carmaker has been negotiating for weeks with unions about revamping its business and lowering costs, including considering plant closures in Germany for the first time.

"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 several hundred employees at the carmaker's largest plant in Wolfsburg on Monday.

"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.

The comments mark a major escalation of a conflict between Volkswagen's workers and management, which is under significant pressure to cut costs and remain competitive amid weaker demand in China and Europe.

They also increase pressure on the German government to address the persistent weakness of its economy, which is facing a second consecutive year of contraction, prompting Chancellor Olaf Scholz's coalition to find ways to spur growth. Scholz is currently trailing in polls ahead of next year's federal elections.

Cavallo urged Berlin to urgently devise a masterplan for German industry to ensure it does not "go down the drain".

A government spokesperson stated that Berlin is aware of Volkswagen's difficulties and remains in close dialogue with the company and worker representatives. The spokesperson emphasized that past management mistakes should not harm employees and that the goal is to maintain and secure jobs.

Cavallo mentioned an agreement between workers and the board regarding the problems faced by Volkswagen and many European peers, which include a slower-than-expected electric transition and fierce competition from Chinese carmakers entering Europe.

"We are not far apart when it comes to analysing the problems. But we are miles apart on the answers to them," Cavallo said.

Monday's announcement follows negative news for German carmakers last week, with Mercedes-Benz announcing it will intensify cost-cutting measures after a decline in earnings. Meanwhile, Porsche, which is majority-owned by Volkswagen, indicated it is reducing its dealership network in China due to weak demand in the world's largest auto market, also signaling billions of euros in cost cuts.

German carmakers fear getting caught in a trade war between the EU and China, with substantial EU tariffs on Chinese electric vehicles expected to come into effect this week.