VW is considering plant closures, also in Germany (update)

As the VW Group will miss its savings targets by several billion euros, the top management is planning further cuts. For the first time in its 87 years of existence, possible plant closures and redundancies are being considered, also in Germany.

Meanwhile, VW’s daughter Audi announced that the Audi Brussels plant would not produce a new model after the production of the current Q8 e-tron had stopped.

Last week, VW reported that it was up to three billion euros short of its savings target. German publication Der Spiegel writes, “There is currently a gap of four to five billion euros in the financial plan of the Volkswagen and VW Commercial Vehicles brands.”

Harsher economic environment

“Volkswagen has to act decisively, says group CEO Oliver Blume. “The entire European car industry is living in a demanding and grave era,” he added. “The economic environment has become even harsher, and new competitors are entering the European market.”

There are many reasons for this, including higher material prices, the weakness of the US market, and the cheaper equipment that customers are currently ordering during the economic downturn. Margins are particularly high for optional extras. The Volkswagen Group’s net benefit was reduced to 3.63 billion in Q2 of 2024. The profit margin shrunk to a meager 2.3% in H1 2024.

The magazine also writes that the manufacturer is troubled by the comparatively low-profit margins of electric cars. Enormous amounts are missing. Brand boss Thomas Schäfer also admitted as much at a management meeting on Monday. Further savings are needed to protect the brand from losses.

Conflict in the making

“The cost-cutting program at VW is escalating and leading to a major conflict between management and the General Works Council,” wrote the Works Council on Monday. According to the Works Council, the brand management board has canceled at least one major vehicle plant and one component factory in Germany.

Product commitments that have already been made are also likely to be canceled, such as a compact-class electric SUV planned for 2026 from the Wolfsburg plant.

VW has also confirmed that it is “canceling the job security agreement that has been in place since 1994.” The current agreement would have run until 2029. In other words, instruments such as early retirement, partial retirement, or termination agreements are no longer sufficient to reduce the workforce slowly.

‘Extremely tense’

In the current situation, plant closures cannot be ruled out ‘without rapid countermeasures’. The situation is “extremely tense and cannot be overcome by simple cost-cutting measures.”

The VW Works Council rarely holds back from criticizing the management and is now using harsh words. “The Board of Management is questioning nothing less than the entire VW core brand. We will not allow ourselves to be wound up here,” said Works Council Chair Daniela Cavallo, announcing “fierce resistance from the employee side.”

Stephan Weil, the Minister-President of Lower Saxony, has already reacted. He urgently called to avoid redundancies but added that “all other options are possible.”

Where to cut?

It is not yet known where VW intends to cut back. The Volkswagen Group employs almost 300,000 people in Germany. Given the state of Lower Saxony’s involvement, the local plants in Wolfsburg, Hanover (VW Commercial Vehicles), and Emden, as well as the component plants in Brunswick, Salzgitter, and Osnabrück, are considered untouchable.

That leaves the MEB plant in Zwickau, the Transparent Factory in Dresden, and the component plant in Kassel. Over 26,000 people are employed in Kassel, Dresden, and Zwickau.

Emden is the smallest vehicle plant in Germany, with 8,500 employees in production. The ID.4 and ID.7 are built there, and Emden will become an exclusively battery-electric car plant from 2025.

However, the German state of Lower Saxony has protected the site with its 20% voting rights in the VW Group Board. Repeated rumors have been circulating about a possible sale of the Osnabrück components plant with its 2,300 employees but not about a closure.

The plant’s overcapacity in Zwickau has been a problem for more than a year. The slowdown in EV sales has made this problem even more acute, so the board is also scrutinizing Zwikcau.

The fact that Audi is openly discussing the option of closing its factory in Brussels was already seen as a turning point. This was previously unthinkable for Germany itself but is now being discussed nonetheless.

Earlier on, social plans with job cuts have already been announced in Germany at the car industry suppliers, for example, Bosch, Continental, and ZF. The recent ambitions from Volkswagen are further fragilizing an already unpopular German government. Last weekend, the governmental parties were severely punished in the regional elections in North Eastern Germany.

What about Audi Brussels?

Of course, the Volkswagen Group will also look outside Germany, which means it is practically sure that the Audi Brussels plant will be closed soon. On Tuesday, Audi announced at an extraordinary works council that no new model will be built after the current Q8 e-tron is stopped.

The production line of this Q8 e-tron should have been restarted today, but with the announced bad news, the workers refuse to start production again.

Audi also announced that Volker Germann, the plant director who has led the Audi Brussels factory for the last five years, will take on another responsibility within the Audi group. Thomas Bogus, the actual project manager at Audi for all electric vehicles, will replace him.

He will have to persuade the heavily disappointed personnel to build the last Q8 e-trons that are still planned and (eventually) ordered. If he tries to reform the factory and make it a supplier factory for electric parts for the whole Audi Group, it is still a question mark.

The unions in Brussels fear that he will put the light out in Brussels as soon as possible. To be just a supplier plant for the group means that only some 500 of the 2,500 people now working at Audi Brussels could stay.

The rumor that a Chinese competitor could be interested in taking over the Belgian factory is gaining ground. Several Chinese manufacturers are looking for a place in Europe to produce their cars, especially with the EU tariffs threatening to raise the price for vehicles made in China.

Until now, the Volkswagen Group had ruled out selling factories to Chinese competitors, but they changed their minds. They are now intensively collaborating with the Chinese manufacturer XPeng and are willing to deal with the Chinese on the production side.