Employees gone, factories closed: German pride Volkswagen in decline

This article was last updated on September 11, 2024

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Employees gone, factories closed: German pride Volkswagen in decline

There is sand in the engine of the figurehead of German industry. Car manufacturer Volkswagen, which also includes the Audi, Skoda and Seat brands, is selling fewer and fewer cars. This means that profits continue to decline. The top of the company is taking action: from July next year, management wants to lay off staff and possibly even close factories.

The news is a blow to German industry. Volkswagen employs almost 300,000 people in Germany. The car manufacturer wants to be the first to get rid of temporary staff in those factories more easily. For this reason, the manufacturer unilaterally terminates a long-term agreement with the union. This agreement should protect employees with temporary contracts.

The company previously announced a major reorganization. The CEO is even threatening to close factories in Germany, which would be the first time in the car manufacturer’s existence. The unions reacted eagerly and even Chancellor Olaf Scholz was forced to enter into discussions with the top of the company.

Electric driving

Volkswagen has still not recovered from the sales dip due to corona. The company also struggles with high costs. Although energy and steel prices have fallen again, many wage costs are incurred, especially in Germany. The 296,134 people working in Germany make up almost half of the total workforce.

In addition, the company is struggling to compete in the field of electric driving. Not only are more electric cars coming from China to Europe; Conversely, Volkswagen is also less successful than a few years ago in selling cars to the Chinese.

Volkswagen is currently struggling to invest sufficiently, says Rico Luman, transport and automotive sector economist at ING: “There are many new competitors, especially Chinese manufacturers who are gaining market share. Volkswagen wants to make the transition to electric well, but they are succeeding. not with the current cost level.”

100 production locations worldwide

The closure of Volkswagen factories in Germany is a sensitive matter. It hasn’t happened before in history. There is political pressure, as the conversation with Scholz showed, and German unions say they will not accept forced redundancies.

Volkswagen has more than 100 production locations worldwide. That is why, according to Luman, the company can still turn the tide: “It could also be a reshuffle within the group. The company has options to move production to other continents. But also within Europe, for example in Eastern Europe, there are opportunities to cheaper to produce.”

Also in the Netherlands

The headwind in Germany is also felt across the border. The Dutch automotive sector produces many parts for Volkswagen and other German car manufacturers. “90 percent of what we make here is for export,” says Albie van Buel, Automotive Director at the RAI Association. “And 45 percent of that goes to Germany.”

Last year, demand among Dutch suppliers rebounded, says Van Buel. “But Volkswagen’s messages are a first step in the other direction.” Demand is therefore expected to decline in the near future. “Especially at companies that make parts for cars with a combustion engine.”