Volkswagen in Germany compromises with the union: promises not to close factories, but will comprehensively reform its German operations and lay off 35,000 employees

After nearly three months of marathon negotiations, Germany's Volkswagen has reached an agreement with labor representatives on cost-cutting measures. According to Deutsche Welle on the 20th, after tough negotiations, Volkswagen and the union ultimately agreed not to close factories but to comprehensively reform its German operations in the future, including cutting 35,000 jobs and reducing production capacity by more than 700,000 vehicles in Germany.

"Christmas Miracle"

Volkswagen and the union reached a labor agreement, and Reuters reported on the 22nd that this was the last agreement reached by the largest European automaker and the union to avoid large-scale strikes. It is reported that this is the fifth round of negotiations between Volkswagen and the union, with 70 hours of negotiations being the longest in Volkswagen's 87-year history. Union leaders praised the agreement as a "Christmas miracle."

Volkswagen stated that this agreement will save the group €15 billion annually in the medium term but will not have a significant impact on its performance expectations for 2024. Although there will not be an immediate closure of factories, the Volkswagen plant in Dresden (a city in Saxony) will cease car production by the end of 2025, and the group is exploring new options for that plant. Meanwhile, Volkswagen will repurpose the Osnabrück plant, including looking for buyers. Additionally, some production will be transferred to Mexico starting in 2027. According to the collective wage agreement, Volkswagen Group employees will not see wage increases over the next four years, and some bonuses will also be canceled or reduced.

Volkswagen Passenger Cars CEO Thomas Schäfer stated, "In the negotiations, we had three priorities: reducing excess capacity in German plants, lowering labor costs, and bringing R&D costs down to competitive levels. We have reached viable solutions on all three issues." Regarding the reduction of more than 700,000 vehicles, he added, "This is a difficult decision, but it is also an important decision for the future."

Deutsche Presse-Agentur reported that "the decision to close the Dresden plant in 2025 leaves a 'bitter taste' in Saxony, Germany." The report quoted Werner Ahl, an expert from the Chemnitz Automotive Institute in Germany, saying, "The agreement avoids labor disputes, which is an important outcome. But a carefree Christmas will look different." He expressed concerns about the significant consequences, especially for the Saxony region, where the network of suppliers and service providers will be heavily impacted.

Some Compromises Reached Are "Painful"

Reuters stated that the agreement, which avoids further strikes, has relieved investors. After the agreement was reached, Volkswagen's stock price rose by 2.4% in after-hours trading. So far this year, the company's stock price has fallen by 23%. Since September, Volkswagen has been negotiating with union representatives to discuss measures it deems necessary to better compete with rivals and further address issues such as weak demand in the European market and slower-than-expected adoption of electric vehicles.

Reactions to the agreement reached by Volkswagen have varied. Volkswagen Group CEO Oliver Blume stated in a statement that by reaching a comprehensive package of measures, the company has set a decisive direction for the future in terms of costs, capacity, and structure, "Now we can shape our own destiny again." Greg, the negotiating representative of the German metalworkers' union, admitted that some of the compromises reached are "painful," including the reduction of tens of thousands of jobs over the next few years. However, the worst outcome has been avoided, such as implementing a comprehensive 10% pay cut for German employees. European automotive market analyst Matthias Schmidt stated that, according to the population curve for 2030, laying off 35,000 people may not be enough, and the timeline for layoffs is too long to address the stagnation currently facing the European market.

Following this news, German Chancellor Olaf Scholz welcomed it, calling it a "good and socially responsible solution." "This is not an easy time for Volkswagen employees," Scholz said in a statement.

German Economy Minister Robert Habeck stated that every job lost is a loss. "We must now work together to reshape and enhance the competitiveness of the automotive industry while injecting new momentum into the promotion of electric vehicles."

Highlighting the Overall Transformation Difficulty of German Automakers

The French newspaper Le Monde analyzed that the final agreement of collective negotiations at Volkswagen will save the group significant costs each year, but the gradual transfer of some production lines abroad highlights the overall transformation difficulty of German automakers, stating that "Germany's largest industrial company has failed to keep pace with changes in the world."

It is reported that Volkswagen's stock price has halved over the past five years. Ingo Speich, head of the Deka Investment department, stated, "This development is the result of wrong decisions." For many years, Volkswagen's business has been a success story. "But that is over; the reforms came too late." This traditional German automotive giant has announced plans to collaborate with American electric vehicle startup Rivian and Chinese XPeng to drive its development transformation.

Munich expert Andreas Bosch believes that Volkswagen and other German automakers have not yet achieved a "paradigm shift towards the information economy," which has had a certain impact on them.

"Two-fifths of companies plan to lay off employees by 2025," reported the German website "Business Insider" on the 18th. A survey by the German Economic Institute shows that among the 12 large companies that will continue to lay off employees next year, seven are automakers or automotive parts suppliers. The institute believes that the German economy is increasingly weakening, and the industry is in crisis. In this context, large enterprises are suffering from high energy costs, inflation, and weak demand.

According to reports, German automotive supplier Bosch has cut about 450 positions this year. By 2027, the entire group will cut 10,000 jobs, with up to 3,800 jobs affected in Germany alone. German technology company ZF plans to lay off about 14,000 people by 2028. American automaker Ford hopes to cut about 4,000 jobs in Europe by 2027, with 2,900 employees affected in Germany. Schaeffler will lay off 4,700 people globally, with about 2,800 employees in Germany potentially affected. Additionally, American carmaker Tesla also plans to lay off hundreds of employees in Germany Author: Aoki, Wang Yi, Source: Global Times, Original Title: "Volkswagen Compromises with Unions: Promises Not to Close Plants, but Will Fully Reform German Operations and Lay Off 35,000"

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