Volkswagen’s cost-cutting plan threatens German auto industry

Volkswagen Group's comprehensive cost-cutting package to combat Chinese manufacturers' expansion is pending approval from its Supervisory Board as the carmaker intends to completely close four plants and lay off 50,000 additional workers in the face of challenges, threatening an employment collapse in Germany.

The plan far exceeds the previously agreed-upon plan from two years ago, and with the company's stock trading at its lowest level in 16 years, pressure for change has reached an all-time high.

The plan, which analysts describe as the most radical transformation in the history of the world's second-largest automaker, will be discussed at a board meeting in Wolfsburg on Thursday.

Volkswagen's radical proposal is motivated by declining profit margins, protectionist tariff policies in the United States, and a loss of market share to Asian competitors.

Volkswagen is alleged to have prepared a comprehensive plan to lay off around 100,000 of its 675,000 workers worldwide in the coming years. The leaked draft of the carmaker's plans was met with resistance from organized labor unions and shareholder blocs with veto power.

The IG Metall union and the Volkswagen Works Council formed a front block against this threat scenario, while worker representatives announced they would employ all legal and industrial means to protect the Volkswagen Act, factories, and the culture of co-management.

The representatives argued the firm should prioritize next-generation technologies and job security instead of blind panic.

A spokesperson from Volkswagen declined to comment on the speculation, reiterating that the process is still under evaluation by relevant committees.

The main diplomatic and operation crisis the carmaker is facing is unfolding at its Onsabruck facility.

The restructuring plan includes the closure of the Osnabruck plant currently employing 2,300 workers—the plant is slated to cease production next year and will reportedly be transferred to the Israeli defense firm Rafael next year to manufacture Israel's Iron Dome missile defense system.

The Qatar Investment Authority (QIA) reportedly stalled the project due to tense Qatar-Israel relations, as it holds a 17% voting stake in Volkswagen.

Neither the QIA nor a spokesperson from Volkswagen's management and supervisory boards issued official statements on this subject matter.

The transfer is supported by the federal government and the state of Lower Saxony, which holds a 20% stake in the company, but it is still facing difficulties not only due to the QIA's veto but also due to protests by the locals.

Volkswagen's previous plan was to call for the layoff of 35,000 workers by 2030, adopted in 2024. Unions called it a major victory at the time as it meant no mandatory layoffs or plant closures.

The carmaker is facing not only trouble on the labor side but also intense pressure from Porsche SE, its main investor.

Financially shaken amid massive losses on its core investments, Porsche SE says simple cost-cutting measures are no longer enough, demanding direct reforms across the group's entire business model.

Given the carmaker's traditional structure, implementing such a plan of this caliber without union approval is nearly impossible, as labor representatives now hold 10 out of the 19 seats on the Supervisory Board, which nullifies board chair Hans Dieter Poetsch's tie-breaking vote advantage.

In the past, CEOs who clashed with labor representatives, such as Herbert Diess in 2022 and Bernd Pischetsrieder in 2006, were forced to resign.

Oliver Blume, the current CEO of the Volkswagen Group since September 2022, came to the fore as someone who successfully balanced various priorities up until now, but the sudden resignation of shareholder representative Susanne Wiegand from the Supervisory Board shifted the internal balance in the workers' favor.