Volkswagen considers historic German plant closures in cost-cutting drive

Volkswagen is considering closing factories in Germany for the first time, in a move that shows the pressure Europe's top carmaker is facing from cheap Asian competition.

The move marks the first major clash between Chief Executive Oliver Blume, who analysts have described as more of a consensus builder compared to 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.

IG Metall, Germany's most powerful union, has repeatedly thwarted management attempts to carry out more far-reaching changes, most recently in 2022 when 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 closure. 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 programme, which has been in place since 1994 and prevents job cuts until 2029, adding all measures would be discussed with its works council.

"The situation is extremely tense and cannot be overcome by simple cost-cutting measures," Volkswagen brand chief Thomas Schaefer 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 euros ($11 billion) in savings by 2026 as it attempts to streamline spending to survive the transition to electric cars.

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

Volkswagen shares were up 2.57 per cent as of 1325 GMT, after jumping about 1.5 per cent directly after its announcement at 1300 GMT.

The company has lost almost a third of its stock market value over the past five years, making it the worst performing stock among the major European carmakers.

Volkswagen, which is facing mounting challenges at home and abroad, has seen its market share in China, its largest market, shrink as fast-moving Chinese rivals roll out consumer-friendly, affordable electric cars.

Those same Chinese automakers are now starting to expand into Europe, placing additional pressure on Volkswagen to develop cheaper EVs, fast, or risk losing out on sales at home.

Volkswagen's plans mark the latest blow to German Chancellor Olaf Scholz, whose three-way coalition was slammed in regional votes on Sunday that showed major wins for the far-right Alternative for Germany party.

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 for the automotive industry, but declined to comment specifically on planned cuts announced by Volkswagen on Monday.

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

Works council chief Daniella 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 closures, the board should be reducing complexity and taking advantage of synergies across the Volkswagen group's plans, Cavallo argued, criticising the company's "documentation madness" and "salami-slicing tactics".

Cavallo was referring to VW not only weighing plant closures, but also dissolving wage agreements and dropping its commitment to both job security and efficiency.

Chief Financial Officer Arno Antlitz will speak to staff alongside VW brand chief Thomas Schaefer at a works council meeting on Wednesday morning. Cavallo said she expects CEO Blume to get involved in negotiations as well.