Source: AFP
German auto giant Volkswagen said on Monday it could make the unprecedented move to close production plants in Germany and threatened further job cuts as its austerity plans stall.
Rising costs in the car industry have squeezed profits, leaving Volkswagen facing “particularly significant challenges”, the group said in an internal memo seen by AFP.
“In the current situation, even plant closures at vehicle and component production facilities can no longer be ruled out,” Volkswagen said in the memo sent to employees.
Unions and government officials reacted with concern to the idea of closing factories in the group’s home market, a decision never before taken by Volkswagen.
The announcement by one of Germany’s blue-chip companies heightens concerns for Chancellor Olaf Scholz, after the domestic economy has struggled in recent months.
“The European car industry is in a very challenging and serious situation,” Volkswagen CEO Oliver Blum was quoted as saying in the note.
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“The economic environment has become even tougher and new competitors are entering the European market,” Blume said.
The difficulties were particularly acute in Germany, which is “further behind in terms of competitiveness” as a manufacturing location, he added.
“We as a company must now act decisively,” said the CEO.
‘Insufficient’
Volkswagen last year announced plans for a 10 billion euro ($11 billion) savings program and has flagged workforce cuts in the coming years to improve profitability.
However, the group said further action was now required following disappointing results published in August which showed a drop in profits.
Rising costs and cooling demand in China also meant the group had to cut its profit margin forecasts for the rest of the year.
Despite the cost-saving measures already announced, “current developments in the car market and the German economy require further action,” according to the note.
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The company’s board of directors had decided that “the brands within Volkswagen AG must undergo a complete restructuring.”
“The goal should be to optimize product costs, material costs and sales performance, as well as plant and labor costs,” according to the memo.
“Simple cost-cutting measures” were no longer enough, he continued, while the group said it was considering job cuts that were not previously at risk.
The need for greater staff reductions meant the company was “forced” to terminate a labor protection agreement that had been in place for the past three decades.
Workers’ representatives reacted angrily to the announcement, saying they would resist changes to the auto industry.
Volkswagen’s board had “failed”, works council president Daniela Cavallo said in a statement released by the IG Metall union.
“At Risk”
“This puts VW itself and the heart of the group at risk. We will fight hard against it,” Cavallo said.
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“With us the sites will not be shut down,” he said.
According to IG Metall, Volkswagen management believes that “further billions of euros in savings are needed to prevent the core brand (VW) from slipping into the red.”
The leader of the German state of Lower Saxony, which owns 20 percent of the carmaker’s voting shares, called on Volkswagen to avoid plant closures.
The German car industry was in a difficult position and the need for a response from Volkswagen was “unquestionable,” Stephan Weil said in a statement.
“In this environment, Volkswagen’s costs must be examined to ensure continued success,” said Weil, a member of Scholz’s Social Democrats.
However, the option to close the plants should not “just be called into question,” said Weil, whose district includes Volkswagen’s Wolfsburg headquarters.
Markets, by contrast, reacted positively to the news, with Volkswagen shares gaining about two percent on the Frankfurt stock exchange in afternoon trading.
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Around 680,000 people are employed by Volkswagen worldwide, with over 300,000 working for the group in Germany.
The group’s Audi subsidiary last month said it was considering closing its electric vehicle manufacturing plant in Brussels, which employs around 3,000 people.
In Germany, a number of auto suppliers including ZF, Bosch and Webasto have announced job cuts as they struggle to adapt to the new generation of electric vehicles and face growing Chinese competition.
Source: AFP
