Volkswagen mulls closing factories in Germany for the first time and cutting thousands of jobs to reduce costs

Volkswagen issued its second profit warning in three months in September.

Volkswagen is planning to close factories in Germany for the first time and cut tens of thousands of jobs, the automaker’s top union official said.

Daniela Cavallo, head of Volkswagen’s general works council, told employees that the company was mulling the closure of at least three German plants amid intense pressure to cut costs following sliding sales and profits.

Cavallo also said Volkswagen also planned to cut salaries by 10%, freeze wages for two years, and reduce the size of the company’s remaining plants in Germany, where it has about 300,000 workers.

Volkswagen did not immediately respond to a request for comment.

The plans, if enacted, are likely to trigger a bitter battle between unions and Germany’s largest automaker. Unions play a close role in most companies in Europe’s biggest economy, and have representatives on the board.

VW issued its second profit warning in three months in September.

The company has lost market share in China to local rivals selling cheaper EVs and hybrids, and now faces the prospect of competing with the likes of BYD as they expand into Europe.

Volkswagen is also grappling with lackluster demand in Europe. Germany-based automotive analyst Matthias Schmidt told B-17 the company had been hit by the failure of the European car market to pick up as quickly as hoped following the pandemic.

“That is causing an over-capacity and under-utilization problem leading to the need for restructuring across European operations,” said Schmidt, who added that VW’s European market share was also under pressure from Tesla and Chinese automakers.

Many of Volkswagen’s European rivals are also encountering similar problems as they grapple with slowing demand for EVs in Europe and rising competition abroad.

BMW and Mercedes-Benz, as well as Italian rival Stellantis, have all issued profit warnings in recent weeks, with experts telling B-17 that a lack of affordable options was putting consumers off EVs.