Volkswagen mulls closure of German factories

Carmaker Volkswagen (VW) is considering shutting down two German factories. They would be the carmaker’s first closures in its domestic market, says Jasper Jolly in The Guardian . The Wolfsburg-based manufacturer has informed its employee works council that it was looking at closing “at least one larger vehicle manufacturing plant and one component factory in Germany ” in order to save billions of euros. These proposals underline the difficulties traditional European carmakers are having in “switching from profitable but polluting petrol and diesel cars to cleaner but currently less profitable electric vehicles ”.

Why is Volkswagen considering the closures?

VW has been hit by unexpectedly poor demand for electric vehicles in Europe as well as a “shrinking market share in China , its most profitable market”, say Patricia Nilsson and Kana Inagaki in the Financial Times . However, its drastic decision to break with tradition has also been prompted by the fact that a savings programme launched last year has fallen short, with not enough workers taking up its offer of early retirement or redundancy.

VW’s operating margins have therefore continued to fall, reaching 2.3% in the first half of 2024, far below the 6.5% target it aims to reach by 2026. Finalising the closures will be a “major test” for CEO Oliver Blume, say Monica Raymund and Christoph Rauwald on Bloomberg . Union clashes “felled a number of his VW predecessors”, who all left after they “tried to push through efficiencies”.

Part of the problem is VW’s “labyrinthine governance system”. Management must gain the support of both the billionaire Porsche-Piech family and labour unions for major decisions. The fact that the Lower Saxony government owns a 20% stake is also a problem, as while it supports VW’s cost-cutting efforts, it also insists that “alternative options” to closures must be explored.

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