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'Volkswagen plans 15,000 redundancies'. And for Audi protests in Brussels

Volkswagen could decide on the closure of production plants and more than 15,000 redundancies without the approval of the supervisory board. Audi workers demonstrate in Brussels to protest against possible factory closures. Volkswagen's decision would represent an unprecedented turning point in the company's history. 'There is no plan B'

by Finance Review

16 September 2024

3' min read

Key points

The cost-cutting bill has gone up again
A season of labour unrest just around the corner
Brussels protests against Chinese dumping and Audi redundancies in sight

3' min read

The Volkswagen Group could decide on the closure of several production plants, up to five, and more than 15,000 redundancies, even without the approval of the supervisory board. In this case, provisions of up to EUR 4.4 billion would be needed in the fourth quarter, analysts at Jefferies (a New York-based investment banking and securities brokerage firm) wrote, revealing information received from sources within the German group. The expenses would be related to severance payments.

According to analysts, Vw is finalising new agreements and preparing for potential wage increases in 2025. As for negotiations, 'the unions can only strike over wages,' according to Jefferies, 'not over plant closures or layoffs if they are not protected by contracts,' which the company intends to cancel. The current company agreements on wages and job security, a 30-year tradition, expire at the end of this year. But layoffs would start in July 2025.

However, since 1960, a federal law, known as the Vw Act, has made the Group's decision-making processes very complex. For example, the construction and relocation of plants require a two-thirds majority on the supervisory board.

The cost-cutting bill has risen again

Volkswagen's top management has announced in recent weeks that the €10 billion cost reduction plan to be completed by 2026 is no longer sufficient, given market conditions. Another EUR 5 billion is needed to revive the competitiveness of the brand that gives the group its name, for which the Ros (return on sales) profitability index fell in the first half of the year to 2.3 per cent against the target set for 2026 of 6.5 per cent. Ros measures the company's ability to generate profits from sales excluding the effects of taxes and interest.

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A season of trade union clashes just around the corner

Managers of the German giant have revealed to analysts at Jefferies that there would be no Plan B in case talks with the unions to revive the group's competitiveness fail. This opens up a season of tough trade union clashes, as workers' representatives weigh in the balance of the supervisory board, chaired by Hans Dieter Pötsch, 73. The Board consists of 20 members, half of whom are shareholder representatives.

Among the latter is the Spd-led state of Lower Saxony, which by statute holds at least 15% of the shares (it currently has 20.2%). And yesterday the minister-president, Stephan Weil, 65, called for the introduction of cheaper models, postponed several times, to support sales. "I see a gap in Volkswagen's offer because it is still not possible to buy vehicles in the lower price segment in dealerships," the Social Democrat member told the Dpa news agency. 'The name Volkswagen says it all (people's car, ed.) and must be backed up by facts'.

The other half of the Supervisory Board consists of employee representatives, elected by the employees in accordance with the German co-determination law. Among them is Daniela Cavallo, 49 years old, the combative chairwoman of the works council of a group with over 680,000 employees.

Brussels protests against Chinese dumping and Audi redundancies in sight

Meanwhile, thousands of workers wreaked havoc in Brussels yesterday, exploding firecrackers and blocking the streets near the European Parliament in a demonstration of solidarity with the employees of the Audi factory threatened with closure. More than five thousand demonstrators from Belgium, but also from the Czech Republic, gathered at the Brussels North train station before marching to the European Parliament, displaying placards in support of the Audi workers and demanding an end to Chinese 'dumping' of industrial products. The trade unions called a national strike, blocking public transport.

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The march is a sign of the growing fears that key sectors of European industry such as automotive, which employs some 13 million people, will be put at risk by the energy transition in the face of Chinese industrial might. Audi's factory in Brussels' Forest district, employing around three thousand people, symbolises these fears: it produces electric vehicles, thus in line with the goals of the European Green Deal, but in low demand because demand is falling due to prices that are still too high and consumer fears about too fast devaluation and the charging network.

According to Rho Motion data, in July and August in Europe, sales of electric cars (battery and plug-in hybrids) were -8% and -33% respectively, the lowest since January 2023. Since the beginning of the year, the balance is -4%, with a heavy -23% in a leading market, Germany, after the subsidy cut at the end of 2023. Rho Motion expects sales in China, the world's largest electric vehicle market, to increase by a third this year to 10.5 million units, while in Europe they could be in line with last year's 3.1 million.

Volkswagen ordinary shares lost 1.5 per cent in Frankfurt, the decline since the start of 2024 is 17.9 per cent. (Al.An.).