Volkswagen has “one, maybe two” years to steer its main car brand around, the automotive giant’s finance chief said Wednesday while attempting to convince workers at a stormy meeting to back plans for deep cost cuts, including German plant closures.
Delayed for several minutes as staff whistled and shouted “Auf Wiedersehen” – German for “goodbye” – when he took to the stage, Arno Antlitz appealed to the joint responsibility of staff and management to cut spending if the brand is to survive the shift to electric cars.
To a packed hall of 16,000 workers and another 5,000 outside watching on a screen, Antlitz said Europe’s car market had shrunk after the pandemic and the company was facing a shortfall in demand of about 500,000 cars, equivalent to about two plants.
“The market is just not there,” he told the meeting at Volkswagen’s Wolfsburg headquarters. He added he did not expect sales to recover and that the core VW brand had “one, maybe two” years to cut spending and adjust its output.
In response, Works Council chief Daniela Cavallo said management had “massively damaged trust,” and compared its threat to close plants to a “declaration of bankruptcy.”
Cavallo urged CEO Oliver Blume, who was not scheduled to give a speech, to address staff and explain why the group was prioritizing spending on a 5-billion-euro software partnership with U.S. start-up Rivian over protecting German jobs.
The prospect of site closures at one of Germany’s most storied companies has raised more red flags for Europe’s largest economy, which is battling anemic growth, weaker export demand, higher costs and competition from abroad.
Fresh from a drubbing in regional elections that saw a surge in far-right support, Chancellor Olaf Scholz has made Volkswagen a top priority and coordinated with company executives and union members, a source familiar with the matter said.
Labour Minister Hubertus Heil promised support, telling RTL/ntv that “Germany must remain a strong car country.” However, he did not specify what kind of support and said the company must first do its job to secure employment and prevent site closures.
Scholz’s cabinet was expected on Wednesday to agree proposed measures for tax reductions to boost demand for EVs, which has lagged expectations.
Underscoring the tough backdrop, business sentiment in the German automotive industry slid further into negative territory in August, according to the economic institute Ifo on Wednesday.
Volkswagen, whose brands also include Audi, SEAT and Skoda, said on Monday it was considering closing factories in Germany and ending a decades-old job guarantee at six of its plants in a drive to deepen a 10 billion euro ($11 billion) cost-cutting plan.
It is targeting a 6.5% profit margin at the VW brand by 2026, up from 2.3% in the first six months of this year.
Unions and Volkswagen management in Germany are due to negotiate over a wage increase in October, but labor representatives want to pull that forward and have a wide-ranging discussion on the carmaker’s options, according to Thomas Knabel, a representative for the IG Metall union at Volkswagen’s Zwickau plant.
But the union, one of Germany’s mightiest labor groups with seats on Volkswagen’s supervisory board, cannot imagine starting negotiations without the company taking its threat to close down plants off the table, he warned in an interview.
“We need to agree on the rules of the game,” he said.
While management laid the blame for its financial woes on the worsening economic environment in Germany and new competitors entering the market, labor representatives said the carmaker’s production strategy was inefficient and decision-makers had been too slow in investing to produce a mass-market electric vehicle.
Whatever the cause, the company must make quick decisions about where to cut costs, investors and analysts said – a challenging task for a firm of its size and with a complex power structure formed over its 87-year history.
“In difficult times, management and unions have an ability to get to a consensus,” Jefferies analyst Philippe Houchois said. “But it’s not going to be smooth.”
