VW, Union Agree to Cut Capacity and Keep German Plants Open

(Bloomberg) -- Volkswagen AG reached an agreement with labor leaders to cut capacity at its namesake brand while avoiding factory closures, capping three months of tense negotiations and preventing further union walkouts.

VW agreed to keep the brand’s 10 German factories operational and reinstate job security agreements until 2030, the works council said Friday, confirming an earlier Bloomberg report. In exchange, workers agreed to forego some bonuses, cut capacity at five sites by several hundred thousand units and reduce the workforce by more than 35,000 over the next five years.

The measures, which should lead to about €4 billion ($4.2 billion) in savings per year in the medium term, are a far cry from the drastic cuts VW originally proposed, and it’s unclear whether they’ll appease investors who have seen VW’s shares decline about 21% this year. Still, the deal hands Chief Executive Officer Oliver Blume a fresh start to turn around Europe’s biggest carmaker as it confronts dwindling market share in China and slowing demand for electric vehicles in Europe and the US.

Hammered out in five rounds of negotiations, the agreement offers a rare sign of progress for Germany’s economy, which has stagnated in the face of high energy costs, inflation and weaker demand for exports. Making its auto industry competitive is a central theme of upcoming snap elections. 

“We must now work together to renew and strengthen the competitiveness of the automotive industry and to give new impetus to the ramp-up of electromobility,” Economy Minister Robert Habeck said in a statement. “Both are central to maintaining value creation and employment in Germany and Europe.”

VW shares rose 1.7% earlier Friday in anticipation of an agreement.

The reduction in labor costs, the decrease in technical production capacity by about 750,000 units, and staff reductions provide “much-needed cost relief,” VW Chief Financial Officer Arno Antlitz said in a statement. 

“The real work starts now,” he added. “We need to step up our efforts to boost efficiency in our German plants and optimize processes to ensure a successful transition to electromobility.” 

As part of the deal, management convinced labor leaders to shift production of the Golf hatchback from Germany’s Wolfsburg factory to Mexico, and to reduce capacity at its EV plant in Zwickau by moving production of the ID.3 hatchback, ID.4 sport utility vehicle and Cupra Born to the Wolfsburg and Emden facilities. 

Zwickau will continue to make the Audi Q4 e-tron and follow-up facelift models. Wolfsburg is poised to make VW’s electric Golf that will be underpinned by a new platform developed with Rivian Automotive Inc. That model is expected to be ready from 2029.

If there’s no extension of the job security agreements beyond 2030, VW will have to pay the workforce €1 billion. 

“This is the company’s response to the declining automotive market in Europe and the increasingly intense competition, while at the same time creating the basic prerequisites for continuing to produce successfully at its home base in Germany,” VW said in a statement.

Automakers are battling a sales slowdown in Europe, where consumers under pressure from elevated living costs are balking at the high price of EVs. New-car registrations in the region declined 2% in November from a year earlier to 1.06 million units, led by sharp falls in France and Italy, the European Automobile Manufacturers’ Association said Thursday.

VW’s peer Stellantis NV is trying to recover from a disastrous year that culminated in the ousting of former Chief Executive Officer Carlos Tavares. Manufacturers are separately facing billions of euros in fines if they fail to meet stricter European fleet-emissions rules slated to kick in next year. 

(Updates with CFO comment beginning in sixth paragraph.)

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