Volkswagen to lay off tens of thousands of staff, cut salaries and close three factories in Germany amid electric car slowdown

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Volkswagen plans to shut at least three factories, lay off tens of thousands of its workforce and introduce further cost-cutting measures in Germany as part of a deeper-than-expected overhaul to the business, the company's works council head said on Monday.

Europe's biggest car maker has been negotiating for weeks with unions over intentions to adjust its operations and slash costs as the manufacturer responds to headwinds in the motor industry.

A slowdown in uptake of electric vehicles and the emerging popularity of cheaper Chinese brands in Europe has forced the German powerhouse to consider factory closures on home soil for the first time.

Daniela Cavallo, Chairwoman of the General and Group Works Council of Europe's largest carmaker Volkswagen AG speaks to employees during a briefing about VW's plans to close down three plants and lay off thousands of employees in Wolfsburg, Germany 

Volkswagen reiterated on Monday that restructuring was needed and said it would make concrete proposals on Wednesday.

'Management is absolutely serious about all this. This is not sabre-rattling in the collective bargaining round,' Daniela Cavallo, Volkswagen's works council head, told employees at the car maker's biggest plant, in Wolfsburg, threatening to break off talks.

'This is the plan of Germany's largest industrial group to start the sell-off in its home country of Germany,' Cavallo added, not specifying which plants would be affected or how many of Volkswagen Group's staff in Germany could be laid off.

It has some 300,000 employees in the country, where it has 10 factories — six of them in the northern state of Lower Saxony. 

Volkswagen reiterated on Monday that restructuring was needed and said it would make concrete proposals on Wednesday

The car maker has warned that it faces major sector headwinds, including the increased popularity of cheaper Chinese brands in Europe

A slowdown in uptake of electric vehicles, which VW has heavily invested in, has also triggered the need for drastic cost-cutting measures

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In September, the manufacturer sounded the alarm on potential plant closures, and said it must drop a job protection pledge in force since 1994 that would have barred lay-offs through to 2029.

Chief executive Oliver Blume cited new competitors entering European markets, Germany's deteriorating position as a manufacturing location and the need to 'act decisively'.

Among additional cost-cutting measures is a reduction in salaries by at least 10 per cent and the introduction of a pay freeze in both 2025 and 2026. The board is also said to want to abolish existing bonuses.

Thousands had gathered in Wolfsburg, where the company has been headquartered for nearly nine decades.  

Blowing horns and whistles, workers insisted not a single plant should shut.

Cavallo's comments mark a major escalation of a conflict between Volkswagen's workers and the management, as the company also faces severe pressure from high energy and labour costs, weakening demand in Europe and China and losses triggered by a slower-than-expected EV transition.

Volkswagen said in a statement that it would make proposals for how to cut labour costs later this week, when workers and management meet for the second round of wage talks and the car maker releases third-quarter results on Wednesday.

'The situation is serious and the responsibility of the negotiating partners is enormous... Without comprehensive measures to regain competitiveness, we will not be able to afford essential investments in the future,' Volkswagen Group board member Gunnar Kilian said.

Thomas Schaefer, who heads the Volkswagen brand division, said German factories were not productive enough and were operating 25 to 50 per cent above targeted costs, meaning some sites were twice as expensive compared to the competition.

Employees walk on a day of an announcement of Volkswagen AG job cuts and closure of its few factories, at the company's headquarters in Wolfsburg, Germany

Volkswagen employs some 300,000 people in Germany. Employees at the Wolfsburg plant stand at an information event held by the general works council on Monday

Volkswagen has suffered a decline in sales of both electric vehicles (like the ID.Buzz pictured) and combustion engine models. It has sited the rapid emergence of cheaper Chinese brands in Europe for the reduced demand for its cars

Colin Walker, Head of Transport at the Energy & Climate Intelligence Unit (ECIU), said Volkswagen's actions are a 'sad consequence of an industry that is dragging its heels in making the transition to building EVs, rather than embracing it'.

He added: 'Here in the UK, 80 per cent of the cars we build are exported, the majority of which go to markets that are phasing out the sale of petrol and diesel cars and shifting to electric. 

'If our car industry doesn’t alter production to match these trends, it faces a very uncertain future.' 

He went on: 'A recent report by CBI Economics has found that failing to support the UK’s car industry in making the switch to electrification could see the its economic output fall by 73 per cent, or £34billion, with more than 400,000 jobs being lost. 

'Conversely, get it right and invest in a speedier transition, and the industry’s contributions to the UK economy could increase by over £16billion, with more than 167,000 new jobs being created. 

'Events in Germany have starkly brought these findings to life, and make it clear to anyone concerned about the future prosperity of the UK’s car industry that slowing down the transition to EVs will only serve to hasten its demise.'

Volkswagen shares were down more than 1 per cent after the announcement. 

Shares of peer Mercedes Benz also fell. 

VW shares have lost 44 per cent of their value over the past five years, compared with a drop of 12 per cent for Renault and a gain of 22 per cent for Stellantis.