How Volkswagen's huge workforce became a costly burden

Volkswagen, one of the world's largest automotive manufacturers with nearly 630,000 employees, finds itself grappling with a massive workforce that's now a significant financial burden. This headcount is 60% larger than Toyota's, 140% more than Stellantis', and nearly 240% greater than Ford's. For years, this extensive workforce was seen as a testament to Germany's industrial prowess and VW's substantial profits.

However, it's now a liability, forcing the company to make difficult job cuts to stay competitive against agile Chinese rivals.

In response to mounting economic pressures, Volkswagen announced on September 2 that it plans to eliminate an additional 50,000 jobs worldwide, including tens of thousands in Germany. While the VW Supervisory Board approved these cuts, they've yet to officially approve the closure of four German factories, including those for luxury brands like Porsche and Audi.

Other German automakers and suppliers are also facing similar challenges, with Mercedes-Benz planning to cut thousands of jobs and Bosch announcing large cost-saving measures.

Much of VW's workforce expansion can be traced back to strategic decisions made over the years. Analyst Meghan Ostertag of the US-based Information Technology and Innovation Foundation explains that VW's larger workforce was necessary because the company chose to control more stages of production, leading to higher labor demands and costs.

Additionally, VW's aggressive acquisition strategy, which brought brands like Skoda, Porsche, SEAT, and Bugatti under its umbrella, along with several truck manufacturers, has added to its operational complexity. This complexity, combined with slower transitions to electric vehicles (EVs) compared to Chinese rivals, has contributed to VW's sales decline in China and Europe.

Furthermore, VW's reliance on trade unions and a key shareholder for decision-making has led to years of neglect in workforce adjustment. Germany's powerful unions, which hold 20% of voting rights in VW and can veto major decisions, have repeatedly pushed for high wage increases and generous benefits. Analysts warn that deeper cuts beyond the €4 billion VW hopes to save may be necessary to secure the company's future.

To remain competitive, Ostertag suggests that VW should invest more in automation, which would enable it to better compete with leaner firms like China's BYD, a rapidly growing EV brand in Europe.