VW won’t close plants in Germany, but will produce less with fewer people

On the eve of Christmas, Volkswagen and the labor union IG Metall reached a compromise, ending the ongoing wage dispute. By 2030, 35,000 jobs will be cut, and VW will reduce production capacity in Germany by more than 700,000 vehicles, including its electric cars.

The compromise presented by Volkswagen and labor union IG Metall on Friday evening is significant: more than 35,000 jobs will be cut by 2030. Former VW Group CEO Herbert Diess suggested reducing 30,000 positions in autumn 2021, which caused a considerable uproar in Wolfsburg. Now, such a high number is part of a compromise, and it might have been even higher without the lengthy negotiations. According to the unions, the board initially asked for 55,000 jobs to disappear over time.

Saving €4 billion every year, but no redundancies

Volkswagen AG says it is positioning itself competitively for the future. With the collective agreement on the in-house wage agreement, the company is creating conditions for a €1.5 billion annual financial labor cost reduction by 2030.

Short-term cost reductions, as well as agreed structural measures through capacity reductions and development cost savings, are expected to result in cost effects exceeding €4 billion annually in the medium term. Significantly for the board, this agreement will help the Volkswagen passenger car brand achieve its profitability target in the medium term.

VW intends to avoid redundancies; current employees are guaranteed jobs until 2030. Vacancies will not be filled as roles become vacant. Additional saving measures include cuts to bonuses and profit-sharing. However, the board’s demand for a 10% wage reduction has been dropped.

Instead, IG Metall’s proposal for a ‘Future Fund’, has been adopted as part of the compromise. The German newspaper Handelsblatt states that “a pay increase of just over 5%, similar to agreements in the metal and electrical industries, will be paid into a fund in two stages rather than employees’ accounts.” For example, this fund will be used to finance flexible reductions in working hours for some employees.

R&D restructured, fewer cars produced

Only one department has been specifically identified as an area where jobs will be cut. VW announced that “to invest more in innovations, the Technical Development department will be reorganized. By leveraging group synergies, the competitiveness of Technical Development will be sustainably strengthened.” A significant part of this restructuring is cutting 4,000 jobs by 2030.

VW has confirmed that it will reduce the “technical capacity for building 734,000 cars per year” in its German plants. To illustrate VW’s overcapacity, although Wolfsburg is designed to produce about 750,000 cars annually, only around 490,000 Volkswagen vehicles were made there in 2023.

IG Metall’s statement detailed several agreed-upon model shifts between factories. This also affects the Zwickau electric vehicle plant: the VW ID.3 and its sister model, Cupra Born, which are currently built on the same line, will be produced in Wolfsburg. The iconic Golf, on the contrary, will move from Wolfsburg to Mexico. The mother plant will produce only the new electric Golf on the SSP platform.

With the facelift, the ID.4 will be entirely relocated to Emden, leaving Zwickau with only one production line and the Audi Q4 e-tron as the sole model. In Emden, the entire ID.4 range will be manufactured alongside the ID.7 and ID.7 Tourer. Additionally, a decision will be made in 2027 regarding allocating another model. In Hanover, the T7 Multivan and ID.Buzz will continue to be produced.

So, Zwickau remains operational under the compromise terms. However, the models that have been moved out cast doubt on its long-term prospects. When the plant stays entirely dependent on a single model, an Audi Brussels scenario could follow. “It’s no wonder that this leaves a bitter taste in Saxony,” said Werner Olle, head of the Chemnitz Automotive Institute in Saxony. “The pioneer of e-mobility for the VW brand has apparently done its duty.”

Two smaller locations have no future. Production in the ‘Gläserne Manufaktur’  or ‘glass factory’ in Dresden, where the carmaker builds electric cars based on the MEB platform on a small scale, will end in late 2025. The location will be “repurposed”.

The Osnabrück plant is to be sold. According to information from Handelsblatt, the former Karmann plant “could go to a defense or recycling company.” For now, production of the T-Roc Cabrio has been extended until 2027. A buyer must be found by then, or the discussions will reignite.

Breakthrough

“After long and intense negotiations, the agreement is an important signal for the future viability of the Volkswagen brand, Volkswagen Commercial Vehicles, and the components plants,” said CEO Oliver Blume, according to the company statement.

“With the achieved package of measures, the company has set decisive steps for its future regarding costs, capacities, and structures. The board and management are participating disproportionately,” he added.

“For the future of the Volkswagen brand, we have set ourselves three priorities: reducing overcapacity in Germany, lowering labor costs, and achieving competitive development costs,” said VW Brand Chief Thomas Schäfer. “The negotiations have led to viable results in all three areas. We can largely close the gap in our performance program with the agreed measures package.”

“No site will be closed, no one will be made redundant, and our in-house wage agreement is secured in the long term. With this threefold approach, we have fought for a rock-solid solution under the most challenging economic conditions,” said Daniela Cavallo, Chairwoman of Volkswagen AG’s Works Council.

“Although there are collective concessions beyond monthly incomes, these are offset by the solidarity-driven retention of all sites with prospects, a new job security plan until the end of 2030, and, not least, the assurance for the management that at Volkswagen, changes against the will of the workforce are doomed to fail,” she continued.

The Handelsblatt describes the deal as a “breakthrough” for Group CEO Oliver Blume, “as further steps for the critical planning round in the group can now be taken.” The current planning round was initially scheduled for November but was postponed due to the wage dispute.

In these planning rounds, VW allocates investments for the next five years and determines the distribution of models across its approximately 100 factories worldwide. This year, key production commitments, such as the closure of the Audi factory in Brussels, have already been made ahead of the planning round.

Car sector analyst Ferdinand Dudenhöffer (Center for Automotive Research or CAR) notices that “VW is becoming smaller and smaller in Germany. The country is losing importance in the automotive industry as other historic car manufacturers move in the same direction.”

The automotive crisis in Germany will likely play a significant role in the elections on 23 February next year. Chancellor Olaf Scholz (SPD) wants to go for a second mandate despite being unpopular and has chosen the side of the workers. According to Scholz, “the management’s bad decisions have contributed to the general malaise”. Nevertheless, he has welcomed the collective agreement at Volkswagen as a “good, socially responsible solution”.