Volkswagen to Close Plants and Cut Jobs Amid Falling Sales

Volkswagen

Volkswagen, one of the world’s leading car manufacturers, has announced plans to close at least three of its production plants in Germany and lay off thousands of employees. The decision comes as the company faces pressure to reduce costs while labor unions demand higher wages.

According to the company’s works council, the closures could affect any of Volkswagen’s 10 production sites across Germany, although the specific plants to be closed remain unclear. In addition to the closures, other plants are expected to undergo downsizing. Volkswagen currently employs approximately 120,000 people in Germany, with nearly half based at the company’s headquarters in Wolfsburg, Lower Saxony.

Financial Struggles and Falling Sales

Volkswagen is taking drastic measures to save money as it grapples with declining sales and an increased financial strain. According to its financial report, the company’s operating margin dropped from 7.3% to 6.3% in the first half of 2024. The Volkswagen Group, which owns several major brands such as Audi, Bentley, Porsche, Lamborghini, Skoda, and commercial vehicle makers Scania and MAN, sold about 6.5 million vehicles between January and September 2024, a 2.8% decline compared to the same period in 2023.

The decline in sales is primarily attributed to a decrease in overall car demand in Europe, with sales in Asia, Volkswagen's second-largest market, falling by 11%. Despite maintaining strong marketing strategies and product quality, the drop in demand has significantly impacted the company’s financial performance.

Labor Unrest and Political Backlash

Volkswagen’s decision to cut jobs and close plants follows the end of its no lay-off guarantee, which had been in place since 1994. The company also rejected the unions' demand for a 7% salary increase, sparking protests led by the IG Metall union and political leaders. Olaf Lies, the Economy Minister of Lower Saxony, expressed concerns that closing plants could result in permanent losses of production capacity and expertise.

The state of Lower Saxony holds a significant stake in Volkswagen, owning 11.8% of the company and holding 20% of the voting rights. The regional government has urged Volkswagen to keep all of its German plants operational and to avoid large-scale layoffs. This highlights the delicate balance the company faces between its financial health and its obligations to workers and local governments.