Volkswagen: 10 factories at risk in Germany, cuts start

"The German government is in close contact with Volkswagen regarding the current situation," a spokeswoman for the Ministry of Economics told LaPresse. "The automotive industry is a cornerstone of Germany. Car manufacturers and their suppliers are important employers for many employees, engines of prosperity in regions throughout the country and drivers of innovation beyond the industry's borders. This is all the more true for Volkswagen, which is the second largest car manufacturer in the world'. No comment on austerity measures, as 'the company is currently in talks with the works council'.

"The company has a great responsibility towards its employees and locations. It is therefore important that decisions are taken in close consultation with the social partners,' the spokeswoman concluded.

The reality is that the German industry symbol has for several quarters been facing severe pressure from high energy and labour costs (the highest in Europe), and weakening demand in Europe and especially in China. For decades, the Middle Kingdom was the number one market, but the retreat of combustion engines (since July, new energy cars, i.e. battery and plug-in hybrids, account for more than 50% of new registrations in China) and the overwhelming advance of pure electrics and hybrids from local manufacturers are putting VW in crisis. Mercedes-Benz, BMW and the Japanese Toyota and Nissan are also suffering. The Vw group's results for the first six months of 2024, on a global scale, saw sales fall (-2.4% to 4.3 million), operating profit -11.4% to 10.1 billion, but above all negative cash flow (-0.1 billion compared to 2.6 a year earlier) and net cash at 31.3 billion (-9).

The Gordian knot in the Old Continent is the transition to the battery-powered car, imposed by the European Union (with penalties if the CO2 emission limits of all cars produced are not respected; in 2025 the limits will fall even further, with the risk of penalties amounting to billions for manufacturers, ed.) The transition, strongly desired in Brussels to reach the ambitious goal of carbon neutrality by 2050, has pushed European manufacturers to investments of hundreds of billions, without there being yet a market ready to accept the new products.

Volkswagen's mistake, fresh from the Dieselgate scandal that erupted in the United States in 2015, was probably that it believed more than anyone that the battery-electric car was the only option, right from the start, looking at the announced Chinese invasion. The reality was especially evident when in December the German government closed the incentive taps for budgetary reasons and purchases of electric cars plummeted.

Back to today, the distance between the workers and the management led by the group's ceo, Oliver Blume, is now evident. The unions have organised assemblies at eleven plants, where they will update employees on the progress of negotiations with the company. The start of these protests kicks off a crucial week for Volkswagen, which is preparing to release its third quarter results on Wednesday 30 October. Both sales and profits are expected to fall. As for the truce between the car giant's top management and the metalworkers as a whole, it will expire on 1 December. Without a concrete agreement, the workers could go on strike in the German plants, with serious consequences for production and, of course, for the company's accounts. As the strikes of the American Uaw union in the autumn of a year ago left their mark against the Detroit Big Three, who were then forced to discuss new contracts.

IG Metall, the powerful metalworkers' union, strongly condemned the restructuring, describing it as 'a blow to the heart' for VW employees. Regional leader Thorsten Gröger has already called for protest actions, including strikes and demonstrations. The position is clear: the wage offer for the entire sector is insufficient. The workers are demanding a 7% increase for next year, as well as a flat-rate increase of 170 euro for apprentices. On these points some 3.9 million German metalworkers were called to strike on Tuesday. Overnight demonstrations are also planned at the Volkswagen plant in Osnabrück, which is at risk of closure and falls under the collective agreement of the metal industry, and not under the manufacturer-specific collective agreement.

Volkswagen's most important German plant is at the group's headquarters in Wolfsburg. It has 60,000 employees and a utilisation rate of around 56%. Blume's predecessor Herbert Diess had presented a plan for an expensive doubling of the plant, which would have combined thermal and electric car production. Blume cancelled it. Then Emden, 8,000 employees, where the Beetle was built and today electrics like the Admiral ID.7. Osnabrück, 2,300 employees, produces T-Roc and Porsche 718, in 2023 produced 28,000 units with a theoretical capacity of 100,000. Braunschweig, 7 thousand employees, produces axles, steering systems and battery components. Hannover, capital of Lower Saxony, 13,500 employees, produces commercial vehicles but also the ID.Buzz; it could reach 200,000 units per year but in 2023 it did not go beyond 154,000 (Stephan Weil, minister president of Lower Saxony and member of the supervisory board of Vw was mayor of Hanover). Zwickau is the first electric car plant of the group: last year it produced 247,000 cars, but the maximum capacity would be 360,000. Chemnitz, 1,800 employees, produces internal combustion engines and components. Kassel, 15,500 employees, Vw's largest components factory, from transmissions to exhaust systems to body parts. Salzgitter, produces rotors and stators, i.e. parts for electric motors, but in 2023 produced 806,000 combustion engines compared to just under 400,000 rotors and stators. Finally, the Glass Factory in Dresden. Gläserne Manufaktur, designed only to produce 20 thousand vehicles per year, but last year only 6,000 ID.3 were built. (source: Automobilwoche)

At the end of September Volkswagen announced the second profit warning in just three months. Even the group's premium brands, such as Audi (with the Brussels factory for which the group is looking for investors, but which will certainly not produce the Q8 electric suv from 2025, putting more than 3,000 jobs at risk, ed.) and Porsche, (operating profit -26.7% in the first nine months of 2024a to 4.04 billion) which for years were its golden goose, are now navigating treacherous waters. In particular, Porsche has made it known that it is considering cost cuts and a review of its model range, following, once again, a slump in demand in China.

"Wolfsburg's plan goes well beyond market expectations," observes Daniel Schwarz, analyst at Stifel. "I think this reflects a unique combination of unfavourable factors: competition in China, weakening demand in Europe, especially for battery electric vehicles, stricter regulation." On Monday 28 October the stock closed in the red in Frankfurt: -1.34%, but the drop is more than 19% since the beginning of the year. The European sector index closed just below par and has been in the red by 5.2 per cent since the start of the year.