Documents released by Volkswagen AG this week indicate the company is evaluating workforce adjustments across its brands and regional subsidiaries to align its costs with other major automakers. This suggests Volkswagen AG may need to cut an additional 50,000 jobs, raising its recent cumulative layoff target to over 100,000.
Volkswagen AG CEO Oliver Blume stated this week that the company's costs in administrative, infrastructure, and other functions supporting core operations are 20% higher than its peers. He said that closing this gap without reducing salaries would theoretically require laying off 50,000 employees.
In a statement, Blume remarked, "For decades, the group's headcount has continued to grow, and it has now reached an unsustainable level." He added that if salary reduction measures were adopted instead, the number of positions needing elimination might be reduced.
Simultaneously, Blume noted that Volkswagen AG could not yet confirm whether it could bring its plants in Emden, Hanover, Zwickau, and Neckarsulm up to a competitive capacity level by the 2030s, casting uncertainty over their future.
However, he expressed a preference for a "clever solution" over plant closures and confirmed that the company is engaged in advanced discussions with the defense industry regarding a small German factory.
This latest downsizing plan emerges as Volkswagen's top executives recently submitted a major restructuring plan aiming to halve the number of vehicle models and reduce production capacity. Subsequently, media reports of potential plant closures and layoffs followed, putting significant pressure on the company's labor union, which demanded Blume address and reassure employees.
Prior to this new cost-cutting initiative, Volkswagen AG had already reached an agreement with labor representatives in March of this year to cut 50,000 jobs at its namesake brand and core subsidiaries like Audi and Porsche.
To avoid conflict with the union, the company has relied on early retirement and voluntary departure schemes. Consequently, the layoff process has been slow. As of the end of last year, Volkswagen AG still employed approximately 660,000 people.
Reports indicate that Volkswagen AG's workforce is about 60% larger than Toyota's, 140% larger than Stellantis's, and nearly 240% larger than Ford's.
Industry analysts note that the reason for Volkswagen AG's extensive employee base is its choice to control more production stages in-house than its competitors. Furthermore, this is linked to the company's aggressive acquisition strategy over many years, which brought brands like Skoda, Porsche, SEAT, and Bugatti, along with several truck manufacturers, into the Volkswagen fold. The complexity of integrating all these brands, supply chains, and differing design philosophies has made operations exceptionally cumbersome, increasing manpower needs.
However, against a backdrop of sluggish action in transitioning to electric vehicles among other factors, Volkswagen's profits have struggled to support its massive workforce. Analysts believe Volkswagen is repeating the missteps of the American auto industry decades ago. In the 1960s and 70s, when Japanese and European competitors began eroding their market share, the U.S. "Big Three"—Ford, General Motors, and Chrysler—were slow to react due to bureaucratic bloat and failed to adapt promptly to changes.
In a recent research report, automotive industry analyst Matthias Schmidt also pointed out that the "stranglehold" of labor unions and major shareholders on Volkswagen AG has caused the company to "fail to adjust its headcount in a timely manner for years."
Additionally, for decades, Germany's powerful unions have successfully negotiated significant wage increases and generous benefits, making Volkswagen's German employees among the highest-paid auto workers globally. Volkswagen employs nearly 280,000 people in Germany.
German President Frank-Walter Steinmeier recently stated in an interview that Volkswagen had made some errors in its vehicle strategy over the past few years that now need to be addressed. He said this situation has caused anxiety not only within Volkswagen's various plants but also far beyond them.
Reports highlight that rising costs in Europe, new U.S. tariffs, and the company's ineffective transition to electrification and digitalization have upended Volkswagen's traditional business model of developing in Germany and selling globally. Automotive expert and analyst Frank Schwope noted that Volkswagen's losses are "extremely serious," with global sales plunging nearly 9% in the second quarter of this year, and sales in China plummeting by 36.6%.
Analysts believe that while Volkswagen AG lags behind its peers in factory automation levels, it has begun increasing investments in robotics and digital upgrades to support its electric vehicle production. The company plans to launch its first electric vehicle priced below 20,000 euros next year. According to earlier statements, Volkswagen AG is also considering entering the defense sector or producing proprietary vehicle models.
Comments