Why Germany's Volkswagen could cut 100,000 jobs

Volkswagen's management is holding emergency meetings with workers this week, amid a severe cost-cutting drive that could result in up to 100,000 job losses. The German auto industry is currently experiencing a structural crisis due to competition from Chinese rivals, the shift towards electric vehicles, and higher production costs. As Europe's largest carmaker by volume, Volkswagen is particularly exposed to overcapacity in its German plants, high fixed costs, and reliance on China.

Workers have expressed concern over the communication of the restructuring, describing it as "disastrous." Nine separate meetings will be held at various VW sites between Tuesday and the end of the week. The company had already agreed to cut around 50,000 jobs, mainly through voluntary redundancy schemes. However, management now believes an additional 50,000 positions will need to be eliminated.

CEO Oliver Blume emphasized that Volkswagen is in a "more than critical state" and that the measures taken thus far are insufficient to restore competitiveness. He stated that the company is oversized and too slow and complicated, making it difficult to compete effectively. Volkswagen has grown more bloated than its peers over the years due to controlling multiple stages of production, including components and software, as well as acquiring rivals like Skoda, Porsche, SEAT, and Bugatti.

Volkswagen is also lagging in transitioning to electric vehicles, which has led to a sales decline in China, its former largest market. CEO Blume warned that the company is currently producing around half a million vehicles in Europe annually, which is overproduction. He stated that closing German factories is a last resort, as management cannot see a way for the plants to remain profitable by the 2030s.

Other automakers have criticized Germany's high operating costs, with Mercedes-Benz CEO Ola Källenius highlighting a 70% cost gap between Hungarian and German operations. Blume is expected to face resistance from VW employees, who are among the highest-paid auto workers globally due to strong unions and works councils. Christiane Benner, the head of the IG Metall union, expressed that workers feel "another slap in the face" from the company.

Volkswagen's supervisory board, which includes shareholders and worker representatives, rejected a second round of cost-cutting proposals last month. The decision is complicated by the fact that VW is partly owned by the state of Lower Saxony, which holds 20% of the voting rights and has refused to approve the plans. Lower Saxony's premier, Olaf Lies, emphasized the importance of maintaining the automotive industry in the state.

Blume presented a comprehensive transformation plan, Target Vision 2030, which aims to halve Volkswagen's model lineup and reduce overheads, particularly in Germany. The company will also lower its global production target, expected to decrease from nearly 11 million vehicles in 2018 to 9 million annually. Facing increased competition from China, U.S. tariffs, and geopolitical issues, Blume warned that management must anticipate worsening global risks.