Volkswagen is considering closing factories in Germany

Volkswagen is considering closing factories in Germany for the first time, in a move that shows the mounting price pressure Europe’s top carmaker faces from Asian rivals.

Monday’s move marks the first major clash between Chief Executive Oliver Blume, who analysts have described as more of a consensus builder than his often combative predecessor Herbert Diess, and unions that command substantial influence at VW.

VW considers one large vehicle plant and one component factory in Germany to be obsolete, said its works council as it vowed “fierce resistance” to the executive board’s plans.

Chief Financial Officer Arno Antlitz will speak to staff alongside Volkswagen brand chief Thomas Schaefer at a works council meeting on Wednesday morning.

Volkswagen’s works council head Daniela Cavallo, a member of the powerful IG Metall union, said she expects CEO Blume to get involved in negotiations too, adding that Wednesday’s meeting would be “very uncomfortable” for the group’s management.

IG Metall has thwarted previous attempts at more deep-rooted changes, most recently in 2022 when Diess departed as CEO.

Analysts have in the past named VW sites in Osnabrueck, in Lower Saxony and Dresden, in Saxony, as potential targets for closure. The state of Lower Saxony is Volkswagen’s second-largest shareholder and on Monday supported its review.

Volkswagen, which employs around 680,000 staff, said that it also felt forced to end its job security programme, which has been in place since 1994 and prevents job cuts until 2029, adding all measures would be discussed with its works council.

IG Metall says the job security covers Volkswagen plants in Wolfsburg, Hanover, Braunschweig, Salzgitter, Kassel and Emden.

“The situation is extremely tense and cannot be overcome by simple cost-cutting measures,” Schaefer said in a statement.

VW, which drives most of Volkswagen’s unit sales, is the first of its brands to undergo a cost-cutting drive targeting 10 billion euros ($11 billion) in savings by 2026 as it attempts to streamline spending to survive the transition to electric cars.

A difficult economic environment, new rivals in Europe, and the falling competitiveness of the German economy meant Volkswagen needed to do more, Blume told its management.

Volkswagen, whose shares closed 1.2% higher after the news, has lost almost a third of its value over the past five years, making it the worst performer among major European carmakers.

It faces a challenging landscape of challenges in Europe, the U.S. and especially China, where domestic EV makers led by BYD are grabbing its market share. It has lost more stock value than any major competitor over the past two years.

Volkswagen’s plans are the latest blow to German Chancellor Olaf Scholz, whose three-way coalition was slammed in regional votes on Sunday that saw the far-right Alternative for Germany party top the poll in one state and come second in Saxony.

Carsten Brzeski, global head of macro at ING Research, said the decision highlighted the consequences of years of economic stagnation and structural change without growth.

“If such an industrial heavyweight has to close factories, it may be the long overdue wake-up call that (Germany’s) economic policy measures need to be stepped up considerably.”

Germany’s economy ministry said VW management must act responsibly within a challenging market environment, but declined to comment specifically on planned cuts.

IG Metall said the decision “shakes the foundation” of Volkswagen, which is Germany’s largest industrial employer and Europe’s top carmaker by revenue.

Cavallo said in an interview on Volkswagen’s intranet that its management had made “many wrong decisions” in recent years, including not investing in hybrids or being faster at developing affordable battery-electric cars.

Instead of plant closures, the board should be reducing complexity and taking advantage of synergies across the Volkswagen group’s plans, said Cavallo.