Before Christmas, Volkswagen wants to be in the clear about its restructuring plans, seeking savings of 10 billion euros. The company aims to cut one-fifth of its administrative staff, save 20% on payroll, and has abandoned plans for a new R&D site. The cost-cutting measures apply exclusively to the brand Volkswagen, which is suffering the hardest from the electric transition, and not the group.

Volkswagen is in the midst of crucial negotiations aimed at securing 10 billion in savings by 2026 to revive the competitiveness of the brand against the likes of Tesla and Stellantis. Thomas Schäfer, CEO of the VW brand, disclosed some of the concrete cost-cutting measures of the so-called Performance Program during a staff meeting yesterday. He hopes to land before the year’s end.

Cutting payroll costs

Job cuts are inevitable, as Schäfer acknowledged, stating, “We will soon have to get by with fewer people at Volkswagen in many areas.” A hiring freeze has already been implemented. The cost-cutting agenda extends to reducing administrative staff costs by a fifth, according to an internal memo from Schäfer.

The VW Group’s HR director Gunnar Kilian spoke in an announcement after the staff meeting about cutting payroll costs at non-production operations by 20 percent. “We are not talking about 20 percent staff cuts,” he clarified.

The measures extend beyond wage management. The planned construction of a new development center has been thrown into the bin. Instead of investing 800 million euros in “Campus Sandkamp” in Wolfsburg, the company will pump 450 million euros into the existing buildings.

Red lines

Chairman of the works council at the Volkswagen Group, Daniela Cavallo, has expressed confidence in the talks’ progress and revealed that discussions with management are moving in the right direction. She confirmed the willingness at the other end of the negotiation table: “We want to lay down the cornerstones by the end of the year,” she said.

While negotiations have been ongoing since October, Cavallo outlined the ‘red lines’ for staff, emphasizing the preservation of wage agreements and the earlier promised job security until 2029. This means that potential savings would be explored primarily through end-of-career arrangements.

Growing pains

The challenges ahead for Volkswagen are rooted in the transition to electric vehicles, where global competition, particularly from Tesla and Chinese brands, has intensified while the uptake from the private market lags. Expectations, having resulted in planned production volumes, are unmet by market demand.

Thomas Schäfer has acknowledged the critical situation early in the process, highlighting that many markets are under pressure. After Diesel Gate, his brand made a top priority of the electrification strategy and now suffers from the growing pains of pioneering the transition as a legacy brand.

Facing the need for profound restructuring, Volkswagen has already made strategic moves, including reducing production in Zwickau, where its biggest plant for BEVs is located, and halting assembly of the ID.3  at the Glass factory in Dresden. The stock market responded positively to these measures, with Volkswagen shares gaining 3,62% in Frankfurt on Wednesday.