VW weighing first-ever factory closures in Germany

Volkswagen says it may shut down some of its Germany-based facilities amidst rising competition with Chinese car makers, risking a fight with local unions and marking a historic first for the automaker.

Driving the news: In a statement released Monday, Volkswagen CEO Oliver Blume said the company needed to “act decisively” in response to emerging threats. In addition to factory closures, workforce reductions are also on the table after the brand said it would no longer honor a promise to avoid layoffs until the end of the decade.

• Among those threats is China, whose domestic car industry, fueled by electric vehicles, has proven to be a massive challenge for Europe’s automakers.

• While Volkswagen invested heavily in EVs, sales have remained far behind those of market leaders such as BYD and Tesla.

• The result has been a loss of market share in the world’s biggest car market. Global sales for European auto brands, including VW and Stellantis, are down roughly 20% from pre-pandemic averages, according to Just Auto.

Zooming in: Monday’s announcement comes shortly after Volkswagen released its half-year financial results, which indicate the brand won’t reach its $11 billion savings goal by 2026. Should it follow through, this would mark the first domestic factory closure in the company’s near century-long history. But taking such a remarkable step is easier said than done.

• Local unions, who have a much stronger presence in Germany than in the U.S., have already declared their opposition to any closure. Volkswagen employs roughly 120,000 workers in the country.

• Stephan Weil, a member of the automaker’s board of directors and Governor of Germany’s Lower Saxony region, also urged the company to pursue cost-cutting measures that avoided layoffs.

Bottom line: The fact that the company is pursuing shutdowns despite the certainty of intense local resistance underlines how desperate Volkswagen has become. Sadly, it may not be alone. As China’s home industry continues to grow, other automakers, both foreign and domestic, may be forced to take similar measures in the coming years.

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