Volkswagen’s week from hell risks getting worse

Volkswagen’s week from hell may be coming to a close, but its fight with union workers is just beginning.
On Monday, the carmaker sent shockwaves across the business world by announcing that it was considering shuttering factories in Germany due to stiff competition from China. If it follows through with the proposal, it would be the first closure on German soil in the company’s 87-year history.
With “a year, maybe two years, to turn things around” — according to VW Chief Financial Officer Arno Antlitz — the clock is ticking for the German automaker to reach a deal to reduce its costs as the sector undergoes a generational shift from combustion to electric.
While Volkswagen is hardly alone in the pressure to stay afloat, the company’s unique board structure has put it in a precarious position with little room to maneuver.
“For the past 20 years, it has remained a bulging monster and refused to trim the fat from its production network,” said Matthias Schmidt, a European automotive analyst. “Because of union pressure, VW simply hasn’t altered its strategy.”
Now, to meet its goal of reducing spending by €10 billion by 2026, its executives want to close German production plants. And union workers don’t intend to go down without a fight.
Workers have held strong job protection at Volkswagen’s automotive plants, thanks to a 1994 agreement that protected them from layoffs until 2029.
VW’s executives say that deal needs to come to an end.
But it’s not that simple: VW’s works council holds half the car brand’s supervisory board seats and has strong ties to Lower Saxony — a northern state in Germany that is home to VW headquarters — which controls 20 percent of the board’s voting rights.
In a contentious meeting on Sept. 4, Antlitz told workers the company would need to cut up to 25,000 employees to meet its €10 billion goal. While initially hoping to reach that target through early retirements and natural attrition, it came up €3 billion short.
And the works council is unlikely to blink first in the standoff: The meeting was packed with with thousands of employees who shouted “Auf Wiedersehen” at Antlitz.
“You cannot expect the workforce to bear the consequences of your mistakes,” Daniela Cavallo, the works council’s chair, told Volkswagen executives at the meeting.
Volkswagen was a pioneer in China, largely creating its automotive supply chain and helping one of its largest automotive brands — SAIC — get off the ground through a mandatory joint venture.
The bet paid off and VW soon found itself dependent upon the market for the bulk of its growth and sales.
But Chinese consumers are no longer interested in combustion engine cars and domestic brands have caught up with their foreign competitors in the transition, making vehicles like VW even less enticing.
“There are no more checks coming from China,” CEO Oliver Blume told workers at the meeting.
In the first half of this year, Volkswagen’s sales in China declined almost 20 percent.
The dropoff in Chinese revenue leaves Volkswagen with few options to make up for its monetary shortfall, making the plant closures an obvious choice. VW will need to put a firm proposal in front of union workers to kickstart any negotiations.
Meanwhile, separate negotiations are already underway. Collective bargaining for metal and electrical workers began with union IG Metall announcing in July that workers want a 7 percent pay increase to make up for rising inflation.
Volkswagen’s Sept. 4 meeting was the company “putting its cards on the table” and could be used as leverage in future negotiations with union workers, analyst Schmidt said. With the prospect of plant closures and job losses on the table, the automotive manufacturer could use the threat to reduce pay increases and other demands.
But should the collective bargaining negotiations break down, IG Metall has warned that workers could go on strike starting Oct. 29.
It’s going to be a bumpy fall.