Facing declining profitability, Volkswagen has initiated a significant restructuring plan that includes the unprecedented move of closing a plant in Germany. This decision has drawn considerable attention, marking the first time in the company’s history that it has planned to shut down a facility in Germany. Industry experts predict that these layoffs may affect tens of thousands of employees.
According to the Wall Street Journal, on October 28, Daniela Cavallo, chair of Volkswagen’s labor council, addressed employees at an informational meeting held at the Wolfsburg plant. She revealed that the company proposed closing at least three plants in Germany and cutting employee wages by 10% as part of the restructuring plan.
In September, Volkswagen announced it was considering comprehensive restructuring and plant closures. At that time, the company anticipated closing around two plants, but it is now pursuing a much larger downsizing effort, which has sparked widespread discussion.
Volkswagen operates 10 plants across Germany, including assembly and parts facilities. With around 10,000 employees at each location, estimates suggest that the workforce could be reduced by at least 30,000 if current plans proceed.
The company has already taken steps toward workforce reduction. In October, Volkswagen informed the union that it would terminate a collective bargaining agreement that had guaranteed employment for 30 years. This move allows Volkswagen to begin layoffs starting July 2025.
Industry analysts interpret this decision as a clear indication that Volkswagen’s management views the current business environment as highly challenging. Last month, Volkswagen revised its annual operating profit margin forecast from 6.5% to 5.6%, a drop of nearly 1%.
Earlier in the year, Volkswagen projected a 7% margin, but a series of downward revisions followed. The company has cited weaker-than-expected performance in China—its largest market—and growing competition from Chinese electric vehicles making inroads in Europe. Compounding these challenges, Volkswagen has also faced a broader decline in sales in recent months.
In the first half of the year (January to June), Volkswagen Group’s total sales fell by 2.4% compared to the same period last year, reflecting poor performance. In response to rising labor costs, Volkswagen appears to be downsizing its production operations in Germany.
Furthermore, Volkswagen plans to outsource some departments to external companies and overseas automakers. Volkswagen Brand CEO Thomas Schäfer explained that production costs at German plants have exceeded targets by as little as 25% and by as much as 50%, meaning that operating costs at German plants are about twice as high as those of competitors.
Volkswagen has been negotiating these cost-cutting and business restructuring measures with the union for several weeks. The company is expected to present its plant closure plans following its October 30 announcement of third-quarter (July to September) results.
In response, Daniela Cavallo emphasized that all Volkswagen plants in Germany would be affected, putting tens of thousands of jobs at risk, and criticized the company for focusing solely on cost issues without a future strategy.
Amid intense union backlash against Volkswagen’s bold actions, there is growing sentiment in Germany that a full strike may be imminent.
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