Volkswagen Mulls Plant Closures and Job Cuts in Germany

Volkswagen said Monday it could take the unprecedented move to close production sites in Germany and threatened further job cuts as its savings plans stalled.

Rising costs at the carmaker were cutting into profits, leaving Volkswagen facing "particularly significant challenges", the group said in an internal memo seen by AFP.

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"In the current situation, even plant closures at vehicle production and component sites can no longer be ruled out," Volkswagen said in the note sent to employees.

Unions and government officials responded with alarm to the idea of plant closures in the group's home market, a decision never before taken by Volkswagen.

The announcement by one of Germany's blue-chip companies adds to concerns for Chancellor Olaf Scholz after the domestic economy has struggled in recent months.

"The European automotive industry is in a very demanding and serious situation," Volkswagen CEO Oliver Blume was quoted as saying in the memo. "The economic environment became even tougher, and new competitors are entering the European market."

The difficulties were particularly acute in Germany, which "is falling further behind in terms of competitiveness" as a manufacturing location, he added. "We as a company must now act decisively."

'Insufficient'

Volkswagen last year announced plans for a 10-billion-euro savings program and has flagged cuts to its workforce over the coming years to improve profitability. But the group said further measures were now required after disappointing results published in August that showed a dip in profits.

Rising costs and cooling demand in China also meant the group had to lower its profit margin forecasts for the rest of the year.

Despite the cost-saving measures already announced, "the current developments in the automotive market and the German economy demand further action", according to the memo.

The company's board had determined that "the brands within Volkswagen AG must undergo comprehensive restructuring."

"The goal must be to optimize product costs, material costs and sales performance, as well as factory and labour costs," according to the memo. Simple cost-cutting measures were no longer enough, it continued, while the group said it was considering cuts to jobs previously not at risk.

The need for greater reductions in staff meant that the company was "compelled" to terminate a job protection agreement that had been in place for the last three decades.

Workers' representatives reacted angrily to the announcement, saying they would resist the changes at the carmaker.