By Stephen Wilmot
Volkswagen said it had agreed to a deal with its union to reduce its workforce by more than 35,000 and cut billions of dollars a year in costs, while averting immediate factory closures in Germany.
Under the agreement announced Friday, VW said it would gradually reduce staffing levels "in a socially responsible way," through early retirement and other measures. Workers will also forgo pay increases and lose certain bonuses. In exchange, the company agreed to not make any forced job cuts until 2030 and to keep all its German factories open.
The cost-cutting plan comes as VW and other European carmakers contend with a tough economic environment, high domestic costs, abrupt shifts in demand for electric vehicles and increasing competition from lower-cost Chinese EV makers.
"The agreement is an important signal for the future viability of the Volkswagen brand," Chief Executive Officer Oliver Blume said in a statement, adding that the company had set a "decisive course for its future in terms of costs, capacities and structures."
Friday's deal concludes almost three months of negotiations between VW's management and the company's powerful union and works council. Friction between the two sides had led to some 100,000 workers temporarily walking off the job in recent weeks, with the union threatening wider strike action in the new year if an agreement wasn't reached.
VW had said in September that it was considering closing factories in Germany for the first time in its history in a bid to boost its competitiveness. The weak recovery of Europe's car market following the pandemic had left it with capacity to make very roughly 500,000 more cars than it needed -- two factories' worth, the company said at the time.
In response, VW and its union brought forward long-scheduled wage negotiations and broadened their scope to include the company's annual investment-planning process and the allocation of projects to factories, leading to unusually complex talks.
The final round of talks started on Monday in a hotel in Hanover, Germany, and continued through Friday almost uninterrupted except for breaks to sleep. IG Metall, the German auto workers union, said the final negotiation lasted an unprecedented 70 hours.
At the heart of the deal is a novel cost-control tactic initially proposed by the union. Pay increases won't go directly to workers but will instead fund measures such as early retirement to help the company cut costs without relying on layoffs.
The staffing and bonus reductions will reduce VW's annual costs by 1.5 billion euros, equivalent to $1.7 billion. Taken together with factory-capacity adjustments and other measures, annual savings will rise to EUR4 billion, the company said.
While the deal avoids factory closures today, Volkswagen's two smallest German plants face an uncertain future. Its factory in Osnabrück doesn't have a clear purpose after 2027, when production of the VW T-Roc convertible will end, while production of the ID.3 EV in Dresden will stop in about a year's time. VW said it is looking for alternative uses.
VW is the largest automaker in Europe, where vehicle sales are running almost a fifth below their prepandemic level.
High vehicle prices have collided with a slow economy. During the pandemic, carmakers passed on inflation in material costs while also trying to juice their margins to help cope with the investment requirements of EVs.
The average price of a car in Germany -- Europe's largest market -- is the equivalent of roughly $59,000, according to JATO Dynamics, which is more than the average annual salary in the country. In the U.S., workers earn more and the average vehicle is cheaper.
"A lot of the population is being left out of buying a new car," said Felipe Munoz, global analyst at JATO, referring to the European market.
This year has brought further signs of stagnation, with sales in the region for the 11 months through November up less than 1% compared with the same period last year, according to data released Thursday by ACEA, the regional trade association.
VW isn't alone in its struggles. Stellantis, Europe's second-largest carmaker with brands such as Peugeot, Opel and Fiat, has repeatedly paused production in its Italian factories to keep inventories under control, leading to a standoff with unions and the government in Rome.
Foreshadowing the truce at VW, Stellantis moved to ease tensions in Italy earlier this week, committing to maintaining its current factory footprint and staffing levels in the country.
While the compromises bring workers relief ahead of the Christmas holiday period, they only partially address the fundamental problem that many European car factories are underused following the protracted sales slump, with little sign of relief.
Stellantis's factories in the region will only run at 64% of their capacity on average this year, the lowest in the peer group, according to an analysis by brokerage Jefferies. Ford and Nissan, which have both announced big layoffs, also have weak capacity utilization, the numbers show.
Volkswagen's European factories are producing 84% of their maximum output, adjusting for the planned closure of an Audi factory in Belgium, but the numbers in its German home territory are weaker, Jefferies noted.
"We will manage so we don't have to fire people," said a person close to Stellantis in Italy. "But everything in terms of job levels is dependent on levels of sales."
-- Sarah Sloat and Andrea Figueras contributed to this article.
(END) Dow Jones Newswires
December 20, 2024 15:27 ET (20:27 GMT)
Copyright (c) 2024 Dow Jones & Company, Inc.
Comments