BERLIN (Reuters) – For all its talk of radical change, Volkswagen’s cost-cutting deal in Germany is based on the automaker’s culture of cooperation between managers and workers, company sources said.
That has led some investors and analysts to question whether it will be able to deliver on promises to cut capacity and 35,000 jobs — changes managers say are necessary for business survival amid weak demand and competition from cheap China.
The agreement was reached just days ago and since workers returned from holiday unions have been holding meetings to explain it – with some board members present – to explain it, two labor sources said.
The deal will see each plant set its own cost-cutting goals, and project teams will identify how labor representatives and executives can deliver and increase productivity, measured by cars produced per employee, two sources close to management said. .
Senior officials from both sides will provide quarterly progress reports, administration sources added, adding that if interim cost-cutting targets are not met, negotiations may need to be restarted.
It’s a model that bears all the hallmarks of Volkswagen’s culture of cooperation and compromise, potentially bringing more certainty than top-down change, but risking damaging strikes.
Many questions remain, from how the automaker could lose so many workers without laying off anyone, to how long the promised production capacity cuts will be, to what the long-term fate of plants with empty halls will be.
That put some investors on edge, with Volkswagen shares seen in October, ahead of a quarterly profit.
Patrick Hummel, auto analyst at UBS, said: “People are impatient to invest in auto stocks that trade heavily in next year’s earnings. The market expects them to talk about building blocks — what’s the impact on the bottom line in 2025?
Chances are high. While the Volkswagen Group includes brands ranging from upmarket Audi to mass-market Seat and Skoda, the flagship brand – the German business’ largest – will account for more than half of its vehicle sales by 2023.
Cutting capacity
In long-term talks, the unions said the company was hoping to close three to four factories. Volkswagen declined to give a specific figure, but has repeatedly said plant closures cannot be ruled out.
In the latest deal, the two sides agreed to end production at the Dresden facility, which employs 300 people, and around 2,300 at the Osnabruck plant in 2027, but committed to finding alternative uses for the sites, which could include new ones. Investors.
The all-electric factory in Zwickau will lose one production line but will receive new investment in second-hand combustion and electric vehicles as it goes into production from 2027, according to a factory worker spokesman.
But finance chief Arno Antlitz made it clear in recent comments to investors seen by Reuters that new investments are meeting cost-cutting targets.
The remaining capacity cuts will come from cutting two production lines at the company’s Wolfsburg headquarters.
Investors and analysts are unclear about how much this approach will reduce fixed costs compared to plant closures. Volkswagen said the deal would save 15 billion euros ($15.6 billion) in the “medium term,” without giving details. A spokesman declined to comment on any interim targets.
“It’s hard to square the narrative that it’s so big, and all guns blazing, with the deal coming out,” said Stephen Reitman, an analyst at Bernstein Research who has followed Volkswagen for decades.
‘Vulnerable and Responsible’
How the company will lay off 35,000 people from its workforce is uncertain. Volkswagen in 2010 He promised to cut 30,000 jobs in 2016, but failed to reduce the total workforce — roughly 120,000, then and now — by hiring elsewhere.
A labor spokesman said it hopes to achieve that goal by not replacing retiring workers and by offering early or partial retirement programs, a clause guaranteeing jobs until 2030 — a victory for unions after Volkswagen scrapped its previous job guarantee. Agreement in September – means any departures will be voluntary.
Moritz Kronenberger, investment portfolio manager at Volkswagen shareholder Union, said the deal looked disappointing from the outside but included deeper cuts than some unions had expected and local politicians wielded veto power on Volkswagen’s supervisory board.
“(CEO Oliver Blume) stuck his neck out, made big promises and set off a firestorm inside and outside the company,” Kronberger said.
“Blum is taking the right steps as the right CEO. But the company’s cost structure must be very different in two years. Volkswagen must show that it is equipped for the future and can make attractive products,” he said. : “Bloom made himself vulnerable and responsible.”
($1 = 0.9602 EUR)
(Reporting by Victoria Walderse, Christina Amann in Berlin; Editing by Mark Potter)
