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Volkswagen announced the closing of factories. What are the reasons that led the German car manufacturing giant to take drastic measures?

2024-09-07 09:43:39Kosova&Bota SHKRUAR NGA REDAKSIA VOX
Volkswagen announced the closing of factories. What are the reasons that led the
Protest in Wolfsburg after the unprecedented announcement in the 87-year history of Volkswagen

Volkswagen Group's warning of factory closures and layoffs in Germany has sparked criticism and resistance from politicians and unions.

Volkswagen, Europe's largest carmaker, is intensifying cost-cutting measures, which no longer exclude factory closures or layoffs in Germany.

The announcement that it now plans to close factories in Germany is unprecedented in the 87-year history of the German automaker. Plant closures were previously considered off the table for the Wolfsburg-based company.

Volkswagen has 680,000 employees worldwide. But now management also feels compelled to end the job guarantee program, which has been in place since 1994 and halts job cuts until 2029.

Experts are already talking about a significant change at Germany's largest industrial employer, which due to its shareholding structure has always been an enterprise controlled by the state and the Porsche family. The regional state of Lower Saxony still holds a fifth of the company's shares and a permanent seat on the supervisory board, meaning that securing jobs and factories is always a matter of state interest.

VW in difficult position after austerity plan fails

That may change now that management believes the company is in a precarious position. Last year, Volkswagen launched a cost-cutting program aimed at saving 10 billion euros ($11.06 billion) by 2026. However, the VW giant will have to cut costs by an additional 4 billion euros, according to a report from the German economic daily Handelsblatt.

In a letter to employees on Monday, Volkswagen boss Thomas Schäfer described the situation as "extremely tense" and far from the goal of "simple cost-cutting measures." Volkswagen AG chief executive Oliver Blume added that the European car market is in a "very challenging and serious situation" and that Germany is lagging behind in the competition.

As a result, the 10 car firms within Volkswagen AG must be comprehensively restructured and "plant closures are no longer ruled out," Blume said, adding that layoffs through early retirements and severance packages are also no longer sufficient. Therefore, Volkswagen feels "obliged to terminate the labor security agreement that has been in force since 1994".

'Stomach kick'

Volkswagen has not yet given specific figures about how many of the roughly 120,000 jobs in Germany could be eliminated. VW has also not yet identified which locations could be closed. However, according to VW's works council statement, management considers at least one vehicle plant and one parts plant in Germany irreplaceable.

This could potentially include the factory in Emden, in northern Germany, where Volkswagen and the Meyer shipyard are the most important employers in the region known as East Frisia.

"The prosperity of East Frisia depends a lot on these companies. Every unionized industrial job lost is a blow to the stomach for the entire region," Emden Mayor Tim Kruithoff told DW.

Emden's mayor has the support of union leaders such as Thorsten Gröger, who described the closing of the VW plant as an "irresponsible plan". The head of the regional metalworkers' union IG Metall told the Reuters news agency that the plan is "not only short-sighted but also very dangerous" and risks "destroying the heart of Volkswagen". Gröger also vowed to "fight with all his might" to save all factories and jobs.

Meanwhile, the VW workers' union is quite irritated by VW's reluctance to clarify who might be affected and how. "This puts all German factories in question - regardless of whether they are part of Volkswagen or its subsidiaries, in western or eastern Germany," said Daniela Cavallo, head of the general workers' council. She announced "fierce resistance".

The transformation of the German automotive industry

However, many experts believe that the closure of the Volkswagen factories in Germany is inevitable. Helena Wibsert, director of the Center for Automotive Research (CAR) in Duisburg, Germany, thinks that "there is no other way out". She told German magazine Spiegel on Tuesday that until now, low capacity utilization at plants could be offset by savings from external suppliers. "This is no longer enough," she added.

Moritz Schularick, president of the Kiel Institute for the World Economy, sees the announced cost-cutting measures as the start of a transformation in the German auto industry. He urges the German government not to intervene in struggling carmakers. "Emerging industries are desperate for workers," he told the German economic weekly Wirtschaftswoche.

Volkswagen's flawed ownership structure

CAR founder and director Ferdinand Dudenhöffer sees an "old problem at VW" because the carmaker is "more like a state-owned enterprise than a market-driven company." The problem will continue, he told DW, as long as Volkswagen's company structure remains flawed. Along with a 20% stake and a seat on VW's board, the state of Lower Saxony was also given a blocking minority in key decisions.

The Premier of the State of Lower Saxony, Stephan Weil, has already criticized VW's management, saying that "the issue of closing factories will not arise due to the successful use of other alternatives".

Meanwhile, Emden Mayor Tim Kruithoff is confident things won't be so dire for his city. "I am fully convinced that the plant in Emden will not be affected by this plan," he told DW, noting that VW has invested "more than a billion euros" in the plant to make it ready for "the future of electromobility"./ DW


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