Written by Christina Amann
HANOVER (Reuters) – Volkswagen on Friday announced sweeping changes to its German operations, including more than 35,000 future job cuts and sharp cuts in production capacity in a last-minute agreement between Europe's largest automaker and unions to avoid mass strikes.
Union leaders hailed the agreement as a “Christmas miracle” after 70 hours of arduous negotiations, the longest in the company's 87-year history. There will be no immediate site closures or layoffs, and VW appears to have backed away from demanding a 10% pay cut.
A deal that avoids costly strikes may also provide relief to investors after months of negotiations. Shares rose 2.4% in extended trading after the deal. They lost 23% this year.
Volkswagen (ETR:) has been in talks with union representatives since September about measures it described as necessary to compete with cheaper Chinese rivals, deal with lackluster demand in Europe and slower-than-expected adoption of electric vehicles.
About 100,000 workers have already staged two separate strikes last month, the largest in Volkswagen's history, to protest cost-cutting plans.
“With the agreed package of measures, the company has set a decisive course for its future in terms of costs, capacities and structures,” Volkswagen Group CEO Oliver Blume said in a statement.
“We are now back in a position to successfully shape our own destiny.”
Volkswagen said the deal would allow savings of 15 billion euros ($15.6 billion) annually in the medium term, and saw no significant impact on its 2024 guidance. While there were no immediate closures, VW said it was looking at options for its Dresden factory and reuse. Osnabrück website, including searching for a buyer. Some production will be moved to Mexico.
Car production at the Dresden plant is scheduled to close by the end of 2025. VW AG employees will not receive raises under the collective wage agreement over the next four years, while some bonuses will be eliminated or reduced.
Production at Volkswagen's Wolfsburg plant, its largest, will be reduced to two assembly lines of four.
“No site will be closed, no one will be laid off for operational reasons, and the wage agreement of our company will be secured for the long term,” said works council president Daniela Cavallo.
Conversations at night
The fifth round of negotiations had been ongoing since Monday and lasted until midnight in Hanover this week, with negotiators taking only short breaks to sleep and eat coffee, curried sausages and fruit.
The future job cuts of 35,000 will represent about a quarter of Volkswagen's workforce and come alongside a reduction in the company's network of German factories by more than 700,000 vehicles.
However, IG Metall's chief negotiator, Thorsten Gröger, said the cuts, which would not include mandatory layoffs, were part of a solution to address excess capacity and would be implemented in a socially responsible way.
“Job cuts of 35,000 across the demographic curve until 2030 are unlikely to be sufficient over a much longer timeframe to address the current stagnation we are seeing across the European market,” said Matthias Schmidt, European auto markets analyst.
He added: “I would say the unions could benefit from this more than VW, but realistically, because of the complex structure of the company, this was probably the best they could realistically hope for.”
Porsche, the largest shareholder, welcomed Friday's deal as a “significant improvement in Volkswagen's competitiveness,” adding that it was now necessary to implement the cuts.
Campaign problem
The talks took place in a simple old business hotel on the outskirts of Hanover, where delegates from both sides met for various rounds, sometimes punctuated by breaks during which they stocked up on coffee and fruit after midnight.
Some workers played a round of cards to decompress.
The crisis at Volkswagen occurred at a time of uncertainty and political turmoil in Europe's largest economy, as well as broader unrest among automakers in the region.
The question of how to fix Germany's slow growth has taken center stage as a campaign issue ahead of snap elections in February, while Chancellor Olaf Scholz, trailing in opinion polls, urged Volkswagen to keep all its factories open.
On Friday evening, Schulz welcomed the “good and socially acceptable solution,” adding in a statement, “Despite all the difficulties, it ensures that Volkswagen and its employees can look forward to a good future.”
At first glance, it appears to be a compromise that both sides can live with, said Alexander Krüger, chief economist at Hauck Aufhaeuser Lampe Privatbank.
“Other companies are also pursuing job cuts, and Volkswagen appears to be just the beginning,” he added. “Competitive pricing pressure will likely require further adjustments later.”
Previous Volkswagen bosses, including Herbert Diess and Bernd Bechtsrieder, failed in their attempts to make far-reaching changes to the Wolfsburg-based carmaker, as unions stood firm.
IG Metall's threat of strikes was a powerful bargaining chip. UBS estimated that each strike day in Germany may have cost VW up to 100 million euros in revenue and about 20 million euros in operating profit, based on a reduction in the number of cars produced daily by between 2,000 and 3,000.
($1 = 0.9579 euros)
