Volkswagen plans to close at least three German plants and cut thousands of jobs

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Volkswagen plans to close at least three German plants, cut tens of thousands of jobs and cut wages by 10 percent, the company's top employee representative said on Monday.

The restructuring would be the first domestic plant closure in the company's 87-year history and would trigger a battle with powerful unions and politicians in Germany, where VW employs 300,000 people.

VW management has warned that radical measures are needed as Europe's biggest carmaker faces intense competition in China, falling sales in other key markets and the need to manage the costly transition to electric vehicles. It recently issued its second profit warning in three months.

Daniela Cavallo, the chairwoman of the VW works council, told employees at the company's main plant in Wolfsburg on Monday that executives had two days to reverse the plans and flagged future strikes.

She said CEO Oliver Blume was “playing with the enormous risk that…” . . We will break off the talks and do what a workforce has to do when it fears for its existence.”

The works council represents VW employees and holds half of the seats on the supervisory board.

According to a works council spokesman, the plants to be closed include ten plants that mainly supply the automobile manufacturer's core VW brand.

VW first hinted in September that it was considering closing German plants, but analysts remained skeptical given strong opposition from politicians and works councils.

In a statement on Monday, Thomas Schäfer, head of the company's VW brand, said running some of its German plants was twice as expensive as running rival carmakers.

“We don’t make enough money from our cars right now,” he said. “At the same time, our costs for energy, materials and personnel have continued to rise. This calculation cannot work in the long term.”

VW did not want to comment on possible plant closures on Monday and referred to an earlier statement that they were not ruled out.

Thorsten Gröger, chief negotiator for IG Metall, Europe's largest union, warned that the austerity measures would cause “resistance that one cannot imagine.”

Politicians pointed to the decisions of VW management that contributed to the company's current crisis. A spokesman for the federal government said that Chancellor Olaf Scholz had made it clear that “possible wrong decisions made by management in the past must not be at the expense of employees.”

The Scholz parliamentary group also agreed with this view and Verena Hubertz, economic policy spokeswoman for the SPD, said: “The employees must not bear responsibility when management makes wrong decisions.”

She said Scholz would hold “confidential discussions with business and the unions” on Tuesday about securing jobs and “ensuring future investments in Germany.”

The German state of Lower Saxony, a major shareholder with control of 20 percent of voting rights, has previously said its priority is preserving jobs and has often sided with the works council.

Matthias Schmidt, an independent auto analyst, predicted that VW would likely close two plants in the coming weeks following negotiations with the works council and unions. “They are using some sort of political maneuvering to get the deal they want,” he added.

Like German rivals Mercedes-Benz and BMW, VW faces falling profits in China as consumers cut spending and local brands like BYD gain market share.

The German group, which reports quarterly results on Wednesday, now expects an operating profit margin of about 5.6 percent in 2024, down from its previous forecast of 6.5 to 7 percent.

In a sign of increasing pressure in the Chinese market, Porsche, which is majority owned by VW, reported a 41 percent drop in quarterly profit on Friday.

VW shares closed down 1 percent.

Additional reporting by Guy Chazan and Laura Pitel in Berlin