Mike Shedlock: Volkswagen’s Choice: Fire Union Workers And Cut Costs, Or Go Bankrupt

The unions and government leaders are howling but what must be done will be done.

Big Outcry Over Closures

DW reports VW’s Warning on Plant Closures in Germany Causes Outcry.

Volkswagen’s announcement on Monday (September 2) that it is considering closing factories in Germany is unprecedented in the German automaker’s 87-year history. Such plant closures were considered off the table for the Wolfsburg-based company.

To make matters even worse for the 680,000 VW employees worldwide, the management also feels forced to end its job security program which has been in place since 1994 and prevents job cuts until 2029.

The regional state of Lower Saxony still holds one-fifth of the company’s shares and a permanent seat on the supervisory board, meaning securing jobs and factories has always been seen as matters of state interest.

Last year, Volkswagen launched a cost-cutting program aimed at saving €10 billion ($11.06 billion) by 2026. However, the mass-market carmaker would need to cut an additional €4 billion, according to a report by German business daily Handelsblatt.

In a letter to employees on Monday, VW brand chief Thomas Schäfer described the situation as “extremely tense” and beyond the scope of “simple cost-cutting measures.” VW Group CEO Oliver Blume added that the European automotive market is in a “highly challenging and serious situation,” and that Germany has fallen behind in terms of competitiveness.

As a result, the 10 car brands within the VW Group must be comprehensively restructured, and “plant closures are no longer excluded,” Blume said, adding that layoffs through early retirement and severance packages are also no longer sufficient. Therefore, VW feels “compelled to terminate the employment protection agreement that has been in place since 1994.”

The Emden mayor has the backing of labor union leaders like Thorsten Gröger, who described the VW plant closures “irresponsible plan.”

The VW works council, meanwhile, is particularly enraged by VW’s reluctance to clarify who might be affected and how. “This puts all German sites in the crosshairs — regardless of whether they are VW locations or subsidiaries, in western or eastern Germany,” said Daniela Cavallo, head of the general works council. She announced “fierce resistance.”

CAR founder and director Ferdinand Dudenhöffer sees an “age-old VW problem” because the carmaker is “more like a state enterprise than a market-driven company.” The problem will persist, he told DW, as long as VW’s company structure remains “flawed.” Along with its 20% stake and a seat on the VW board, the state of Lower Saxony was also granted a blocking minority on key decisions.

Lower Saxon State Premier Stephan Weil has already criticized VW’s management, saying “the question of plant closures will not arise due to the successful use of alternatives.”