Victoria Waldersee and Christina Amann Reuters

Sep 2 2024

Volkswagen is considering closing factories in Germany for the first time, in a move that shows the mounting price pressure Europe’s top carmaker faces from Asian rivals.

Monday’s move marks the first major clash between chief executive Oliver Blume, whom analysts have described as more of a consensus builder than his often-combative predecessor, Herbert Diess, and unions that command substantial influence at VW.

VW considers one large-vehicle plant and one component factory in Germany to be obsolete, its works council said as it vowed “fierce resistance” to the executive board’s plans.

Chief financial officer Arno Antlitz will speak to staff alongside Volkswagen brand chief Thomas Schäfer at a works-council meeting on Wednesday morning.

Volkswagen works-council head Daniela Cavallo, a member of the powerful IG Metall union, said she expects Mr. Blume to get involved in negotiations too, adding that Wednesday’s meeting would be “very uncomfortable” for the group’s management.

IG Metall has thwarted previous attempts at more deep-rooted changes, most recently in 2022 when Mr. Diess departed as CEO.

Analysts have in the past named VW sites in Osnabrueck, in Lower Saxony, and Dresden, in Saxony, as potential targets for closing. The state of Lower Saxony is Volkswagen’s second-largest shareholder and on Monday supported its review.

Volkswagen, which employs around 680,000 staff, said that it also felt forced to end its job-security program, which has been in place since 1994 and prevents job cuts until 2029, adding all measures would be discussed with its works council.

IG Metall says the job security covers Volkswagen plants in Wolfsburg, Hanover, Braunschweig, Salzgitter, Kassel and Emden.

“The situation is extremely tense and cannot be overcome by simple cost-cutting measures,” Mr. Schäfer said in a statement.

VW, which drives most of Volkswagen’s unit sales, is the first of its brands to undergo a cost-cutting drive targeting €10-billion ($15-billion) in savings by 2026 as it attempts to streamline spending to survive the transition to electric cars.

A difficult economic environment, new rivals in Europe and the falling competitiveness of the German economy meant Volkswagen needed to do more, Mr. Blume told its management.

Volkswagen, whose shares closed 1.2 per cent higher after the news, has lost almost a third of its value over the past five years, making it the worst performer among major European carmakers.

It faces a challenging landscape in Europe, the United States and especially China, where domestic EV makers led by BYD are grabbing its market share. It has lost more stock value than any major competitor over the past two years.

Volkswagen’s plans are the latest blow to German Chancellor Olaf Scholz, whose three-way coalition was slammed in regional votes on Sunday that saw the far-right Alternative for Germany party top the poll in one state and come second in Saxony.

Carsten Brzeski, global head of macro at ING Research, said the decision highlighted the consequences of years of economic stagnation and structural change without growth.

“If such an industrial heavyweight has to close factories, it may be the long overdue wake-up call that [Germany’s] economic-policy measures need to be stepped up considerably.”

Germany’s Economy Ministry said VW management must act responsibly within a challenging market environment, but declined to comment specifically on planned cuts.

IG Metall said the decision “shakes the foundation” of Volkswagen, which is Germany’s largest industrial employer and Europe’s top carmaker by revenue.

Ms. Cavallo said in an interview on Volkswagen’s intranet that its management had made “many wrong decisions” in recent years, including not investing in hybrids or being faster at developing affordable battery-electric cars.

Instead of plant closings, the board should be reducing complexity and taking advantage of synergies across the Volkswagen group’s plans, Ms. Cavallo said.

https://www.theglobeandmail.com/business/article-volkswagen-considers-historic-german-plant-closures-in-cost-cutting/

1. This is how the US lead trade war against China is going. This probably is collateral damage.

2. This is what real over-capacity looks like. There is no such thing as over-capacity, because it does not last as it goes under or is so competitive it beats the competition, who goes under.

3. When the West accuses China of over-capacity, which is ridiculous, what they really mean to say, is that when China over-invests in certain industries then what happens next is predatory pricing to compete and survive. When the West is accusing China of over-capacity which does not exist, what they really are referring to predatory pricing.

Then why not accuse China of predatory pricing? Which they probably have done. Since predatory pricing is usually associated with monopoly practices, like how Nvidia charges that much for their chips, for propaganda reasons China is a accused of over-capacity and not predatory pricing.

4. Either way, that is no comfort to Volkswagen in Germany. Where is Volkswagen's biggest market? We all know that. They are not closing their plants in China.