By Brinda Patel
Staff Writer
In late October, Volkswagen announced that it plans to close three of its factories in Germany. The car company is known to have a long standing relationship with the country for over 87 years. According to Bloomberg, this move was made due to financial setbacks Volkswagen has faced in the last five years, with sales declining more by 15% this year alone.
“Our main area of action is cost cutting,” Volkswagen Group CEO Oliver Blume told CNN. We have done all the organizational steps needed. And now it is about costs, costs and costs.”
Volkswagen employs about 295,000 people in Germany. Reuters reported that Volkswagen is enforcing 10% pay cuts in order to remain competitive within the automotive industry as profits continue to decline to about 42%. According to CarandDriver, tens of thousands of layoffs are expected to begin as soon as December.
The outcome of this matter may earmark strike risks, further disrupting the supply chain and production schedules. For weeks, Volkwagen has been negotiating with unions to plan ahead on restructuring its business to avoid the strikes.
The VW Group subsidiary Audi has also announced plans to shut down its plant in Brussels, Germany effective immediately on Feb. 28, 2025. In the meantime, Audi is still open to finding an investor to save the plant. However, that may not be an option for Volkswagen. Other subsidiaries, including SEAT, Porsche, Lamborghini, Bentley and Skoda, are all at risk as well.
“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,” said Volkswagen Brand CEO, Thomas Schäfer, in a statement. “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.”
Rob Schmitz, an NPR correspondent located in Berlin, Germany, reported how the car factory closures could affect the country’s economy, along with the possibility of an uproar from Volkswagen worker unions.
“The unions here in Germany have a lot of say in this, but this is going to be huge — so huge that Germany's federal government has already come out and said they'll intervene to try and prevent closures, because the government knows that this isn't just two plants closing,” Schmitz said.
The closure of Volkswagen’s plants is related to the broader auto market. According to Forbes, Europe’s demand for cars is weak in general, especially in a post COVID-19 economy. Volkswagen’s struggle to remain competitive is a possible obstacle other car giants may have to address in a similar manner.
