Unions attack as carmaker considers closing German plants

VolkswagenThe company’s management faced employees on Wednesday, emphasising the need to take “joint responsibility” to improve the situation at the crisis-hit German car giant.

The clash came shortly after the carmaker announced it could no longer rule out closing plants in its native Germany — a move previously thought to be unrealistic.

According to CNBC, photos published by Getty Images show workers protesting in front of City Hall against the company’s potential plans, waving union flags and signs with slogans saying that management’s mistakes were not their fault and calling on leaders to “finally get down to business.”

Volkswagen Group CEO Oliver Blume said on Wednesday that the current situation at the company “affects us all emotionally, including me personally.”

Blume said the auto industry has “changed a lot” in recent years.

“Together we will implement the appropriate measures to become more profitable. We are leading VW back to where the brand belongs – that is the responsibility of all of us,” he added.

“For some time now, we have been spending more money on the brand than we earn. That does not bode well for the long term,” Arno Antlitz, Volkswagen Group’s chief financial and operating officer, told employees, according to comments shared by Volkswagen.

Annual vehicle sales in Europe have fallen compared to the pre-Covid-19 period and are expected to remain lower compared to that baseline, Antlitz explained. He said he expects around 2 million fewer cars to be sold annually on the European market in the future compared to the pre-Covid period.

Antlitz estimates that Volkswagen has about a quarter of the European market share, meaning the decline translates into a deficit of 500,000 vehicles in the company’s annual sales, which is equivalent to the combined sales that two of its plants typically achieve.

Volkswagen said on Monday it believes the employment protection agreement in force since 1994, which protects workers in Germany until 2029, may need to be terminated.

Speculation intensified on Tuesday about the closure of Volkswagen plants in Osnabrück in Lower Saxony and Dresden in Saxony.

“It is our joint responsibility to improve the cost efficiency of the German locations in particular. We need to increase productivity and reduce costs,” Antlitz said. “We still have one or two years to turn things around. But we have to use this time.”

Volkswagen’s works council, made up of staff members elected to represent the interests of employees within the company, and Germany’s largest trade union IG Metall have sharply criticised the plan.

Daniela Cavallo, a top representative of Volkswagen’s General Works Council, said in a speech Wednesday that the response proposed by the automaker’s management “is not only a disgrace. It is a declaration of bankruptcy.”

“In short: everything is at stake,” Cavallo said to employees at the company’s plant in Wolfsburg.

“What can you think of? Closing factories? Layoffs for operational reasons? Cutting wages? Such ideas would only be acceptable in one scenario! And that would be if the entire business model died,” Cavallo said, according to CNBC’s translation.

Cavallo called on Volkswagen management to develop a plan that does not involve closing German factories.

German media had earlier quoted Cavallo as saying that he expected full turnout at Wednesday’s meeting with residents and that employees would clearly and loudly express their dissatisfaction.

Volkswagen shares ended provisionally 1.2% lower on Wednesday. The company’s share price has fallen by more than a third in the past five years.

The crisis comes at a time of difficult economic times for the carmaker and an influx of new rivals into Europe as Volkswagen tries to survive the transition to electric cars.

Philippe Houchois, global head of automotive at Jefferies, said Monday on CNBC’s “Squawk Box Europe” that Volkswagen CEO Oliver Blume would try to soften resistance to the potential plans.

“Blume is a different breed than his predecessor. He is probably more of an insider and will see to what extent he is able to change some of the resistance, to adapt at Volkswagen,” he said.

Houchois also said that based on comments in recent days, Volkswagen management and employee representatives may not have such different views on fundamental issues.

“It is a question of how they will come to an agreement or how they will actually work together, but both sides seem to understand what the end goal is,” he said.

The potential problems at Volkswagen come at a difficult time for both the broader German economy and the country’s automotive industry, as the sector grapples with a number of challenges.

German Chancellor Olaf Scholz has spoken to both Volkswagen management and the chairman of the company’s works council, according to government spokesman Wolfgang Buechner. He added that Scholz is still monitoring the situation “very closely.”

On Wednesday, the Ifo institute said the business climate in the German car industry had retreated again in August, falling to minus 24.7 points from minus 18.5 points the previous month. Business expectations for the next six months were “extremely pessimistic,” Ifo said.