In an unprecedented compromise, Volkswagen reached an agreement with its German labor union to cut as many as 35,000 jobs in Germany – though the automaker agreed not to order immediate layoffs or plant closures and dropped a demand for 10% wage cuts. The move avoided a mass walkout by members of the IG Metall union but is billed as a way to curb VW’s bloated labor costs, among the industry’s highest.
A worker at the Volkswagen HQ plant in Wolfsburg, Germany.
Volkswagen and its German union reached a tentative settlement that eventually will cost as many as 35,000 jobs, while avoiding other significant cuts, forestalling the threat of a massive strike.
The agreement was reached after a difficult, 70-hour marathon bargaining session. It is being hailed by leaders of the IG Metall union as a “Christmas miracle.” As VW backed off from threats to close German plants and impose 10% wage cuts.
Nonetheless, the compromises contained in the contract translate into a “decisive course for (VW’s) future in terms of costs, capacities and structures,” said Volkswagen Group CEO Oliver Blume in a statement.
“Shaping our own destiny”
VW CEO Oliver Blume is shown with Rivian chief RJ Scaringe after negotiating a deal between the two automakers.
While it has routinely landed as either the number 1 or 2 global automaker, in terms of sales, this past decade, VW’s future has become increasingly uncertain in recent years. The automaker has laid out an aggressive plan to become a leader in the EV market but hasn’t delivered on promised volumes, despite hefty investments. And it is now facing increased composed from low-cost Chinese brands like BYD that are rapidly gaining market share in Europe, Latin America and Asia.
Complicating matters, VW’s labor costs are among the highest in the industry. They accounted for 14.5% of revenues in 2023, according to Reuters. By comparison, labor costs were 10.9% of revenues at Mercedes-Benz, 10.1% at Stellantis, and 9.5% at BMW.
The settlement will save about 15 billion euros – $15.6 billion at current exchange rates – in the med-term, VW said.
“We are now back in a position to successfully shape our own destiny,” said Blume. Earlier this year, the carmaker’s finance chief Arno Antlitz warned the company had “one or two years” to take control of costs or face serious financial problems.
The details
VW has one of the highest labor costs – as a percentage of revenues – in the industry.
Nonetheless, union leaders hailed the agreement as a victory.
“No site will be closed, no one will be laid off for operational reasons and our company wage agreement will be secured for the long term,” works council chief Daniela Cavallo said in a statement.
The new deal with IG Metall does not call for immediate plant closures or layoffs, nor wage cuts, and will not impact costs in 2024. But some facilities — including one in Dresden, another in Osnabrueck — could be sold or repurposed at a later time. The most immediate impact will be felt at VW’s headquarters plant in Wolfsburg, Germany where two of four production lines will be dropped.
And while VW dropped demands for a 10% wage cut, it will eliminate or reduce some bonuses.
More VW News
- VW CFO Warns VW Has “One or Two Years” to Address Financial Problems
- Volkswagen Promises Upcoming GTI EV Will Be More Exciting To Drive
- Volkswagen’s Reborn Microvan, the IDH.Buzz, Will Start at $61,545
Strike threat
VW now has to reach a settlement with newly organized workers at its Chattanooga assembly plant.
The two sides have struggled for months to find a solution that could improve Volkswagen’s competitiveness, but the union held out the threat of a massive strike should the automaker keep pressing for more concessions. It recently launched a brief walkout at a number of VW plants to underscore its readiness to fight back. UBS estimated the automaker would lose production of as many as 3,000 vehicles a day if workers walked out across Germany, costing VW $20 million in operating profits.
Alexander Krueger, chief economist at Hauck Aufhaeuser Lampe Privatbank, told Reuters the settlement is something both sides can live with – for now.
“Other companies are also pursuing job-cutting plans, and VW appears to be just the beginning,” he told the news service. “Competitive price pressure will probably require further adjustments at a later date.”
More labor troubles ahead
While VW may have avoided a confrontation in Germany it faces other labor headaches in the U.S. where the United Auto Workers Union is pressing to win its first contract covering hourly employees at an assembly plant in Chattanooga, Tennessee.
The UAW won a lopsided victory there earlier this year, marking its first successful attempt to organize a foreign-owned “transplant” assembly line. (It subsequently lost a vote at a Mercedes-Benz plant in Alabama.)
Earlier this month VW offered a 14% wage hike to Chattanooga workers over the next four years, along with better health care coverage and profit sharing. “This is a contract that keeps Chattanooga thriving,” VW said at the time it made the offer.
But the union countered that “VW is still not taking our demands seriously,” adding “The days of bargain-basement wages that exploit Chattanooga workers are over. The sooner VW realizes that, the sooner we can reach an agreement.”
No strike deadline has yet been set for the talks.
0 Comments