Volkswagen has joined the boardroom competition with a cost-cutting initiative
Employees of Volkswagen Sachsen GmbH stand with Dirk Panter (SPD, M), Saxony’s Minister of Economic Affairs, in front of the entrance to the Volkswagen factory.
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Volkswagen is preparing for a high-profile boardroom tussle following reports that the car giant is on the verge of closing four German factories and cutting 100,000 jobs.
The mass layoff plan, which would represent the biggest change in the company’s nearly 90-year history, is fiercely opposed by German lawmakers and powerful unions.
The disagreement has set the stage for what will be the most anticipated event of the year in the German industry, where Volkswagen executives will seek to win the approval of the company’s supervisory board on July 9.
The board of directors will have to sign off on the cost-cutting exercise, according to Maneja Magazin, which first reported news of the company’s restructuring plans on Friday.
Auto analysts said Volkswagen’s notoriously complex board structure meant the company’s executives faced a bumpy road ahead.
A Volkswagen spokesman declined to comment ahead of the July 9 meeting. The company previously declined to comment on reports of layoffs and plant closures, saying decisions would be made and approved by the appropriate regulatory bodies.
“The whole Group – including its brands and subsidiaries – must undergo a major change,” said a Volkswagen spokesperson.
Europe’s biggest automaker has laid out plans to implement sweeping job cuts and launch a major production offensive, seeking to counter pressures ranging from higher US car import costs to intensifying competition from Chinese autos.
The latest reported layoffs, will double the previously announced 50,000 job cuts and are now said to include the closure of four German plants: Hanover, Zwickau, Emden and the Audi plant in Neckarsulm.
Volkswagen Law
Volkswagen executives will need to demonstrate that nothing more can be done about these measures at a July 9 board meeting, said Thomas Besson, head of automotive research at Kepler Cheuvreux.
“It will be a very difficult move to implement,” Besson said, especially since the German state of Lower Saxony, where Volkswagen is based and operates many facilities, is a key shareholder.
The state, which has 20% of Volkswagen’s voting shares, holds a large stake in the company, in part because of the so-called Volkswagen Law. This decades-old ratio has transformed the company into a joint-stock corporation and effectively limits management’s ability to close plants.
“They have no choice but to fix it. It’s going to be a very complicated process with their stakeholders – so, it’s a difficult task for VW management now,” Besson told CNBC’s “Europe Early Edition” on Wednesday.
An employee of Volkswagen Sachsen GmbH stands with his arms crossed in front of the entrance to the Volkswagen factory.
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Volkswagen’s General Works Council and German industrial union IG Metall have pledged to walk back against the reported job cuts and plant closures. “If such plans are not continued, we will stop them with all our power,” they said in a joint statement, according to the translation.
Volkswagen’s decision to scale back on layoffs and plant closures has also met with strong opposition from Chancellor Friedrich Merz’s coalition government, which is facing historically low approval ratings.
German government spokesman Stefan Kornelius said at a press conference on Monday that the government’s main goal is to “maintain German manufacturing facilities and secure jobs,” according to the translation.
Volkswagen agreed to a deal with unions in late 2024 to avoid factory closures in Germany and avoid forced layoffs until the end of 2030.
‘Important step’
Resistance to Volkswagen’s reported restructuring plans paves the way for a turbulent period of negotiations, said Rico Luman, senior transport and logistics economist at ING.
“It’s very complicated but something needs to happen, that’s for sure. So, the board of directors has to be aware of the urgency again,” Luman told CNBC via video call.
Volkswagen’s challenges reflect the problems facing the European car industry, Luman said, citing challenges in the road to full electrification, competition with Chinese car brands and problems exporting to major markets.
Volkswagen shares so far this year.
“They are still profitable, right? But the reported plans are to prepare for death or loss in the next few years. So, this is a strategic step for what is coming in the future,” he added.
Volkswagen shares were slightly lower on Wednesday, trading at levels not seen since the summer of 2010. The stock, which is down about 33% year to date, has not hit a new 52-week low since news of an accelerated restructuring first broke last week.
