Volkswagen bites back 30-year-old employment guarantee

Tensions with unions are rising in Wolfsburg. Volkswagen has announced the termination of a 30-year-old job security agreement, signaling a significant shift in its labor policies and setting the stage for potential layoffs starting next July. The main culprits are declining car sales, a disappointing return on investment over low EV adoption, and increased competition.

The job security agreements were intended to protect employees until 2029. This commitment has been in place since 1994 and includes six German factories. It will now effectively expire by mid-2025, allowing for potential layoffs to begin as early as July of that same year.

Guarantee is an ‘airbag’

Volkswagen has also canceled agreements that provided job guarantees for trainees and regulated temporary work within the company. Europe’s largest carmaker needs to pave the way to reshape its car business, as economic pressure and the burden of historically built-up wage advantages for its workforce are eroding the brand’s competitiveness.

The announcement follows Volkswagen’s recent statement that it may consider closing factories in Germany due to overcapacity.

According to Volkswagen’s HR chief Gunnar Kilian, this period of uncertainty presents an opportunity to develop future-proof solutions with employee representatives to raise competitiveness in the long term.

‘Airbag protection’

However, the unions strongly disagree. Thorsten Gröger, chief IG Metall trade union negotiator, criticized Volkswagen’s decision to end the job guarantee, arguing that such measures are needed even more during challenging times.

Gröger likened the guarantee to an ‘airbag’ that provides necessary protection during economic downturns. He warned that the union would not remain silent and would take action against the company’s plans.

Daniela Cavallo, head of Volkswagen’s Works Council, has vowed to fiercely oppose any moves toward plant closures or forced layoffs, describing the company’s actions as a historic attack on jobs. “With us, there will be no layoffs,” Cavallo asserted, reflecting the firm stance of labor representatives who occupy half the seats on Volkswagen’s supervisory board.

Adding expenses

Volkswagen’s move to end labor protections could lead to unintended financial consequences. Gröger noted that canceling the agreements might trigger higher wage costs under previous collective bargaining arrangements, potentially adding up to €1 billion in extra expenses for the company.

In response to the escalating tensions, Volkswagen has proposed accelerating wage negotiations, initially scheduled for mid-to-late October. The works council has called for these discussions to begin immediately, warning that delays could lead to strikes as early as November.

The coming months will be crucial as Volkswagen, unions, and workers navigate these turbulent waters, with the future of thousands of jobs hanging in the balance.