A major battle was brewing over Volkswagen Group’s far-reaching corporate downsizing plan in the face of staunch opposition from labor unions and the government of Lower Saxony, and it wasn’t clear if the German conglomerate’s supervisory board was going to sign off on the controversial plan.
But CEO Oliver Blume scored a big win on Thursday – a day earlier than expected – as the supervisory board voted in support of Future Plan 2030, which is expected to cost another 50,000 jobs and potentially close four German assembly plants over the next several years.
Vote Of Confidence Triggers Major VW Restructuring
Porsche Electrification Strategy BlumePorsche
But the vote in Wolfsburg does not bring an end to the acrimony between employees, labor unions, and the state of Lower Saxony, which holds a 20 percent stake in VW Group and helped labor leaders block an earlier version of the proposal in July. This week’s approval vote was unanimous after labor helped shape the final plan and will remain vocal in demanding socially responsible workforce reductions.
“In this crisis situation, we fought hard for good solutions,” said Christiane Benner, Deputy Chair of the Supervisory Board and First Chairwoman of IG Metall. “This explicitly includes developing future scenarios for all plants. As Germany’s largest industrial company, Volkswagen continues to bear an enormous responsibility toward its employees and the regions it operates in.”
German plants in Emden, Zwickau, Hanover, and Neckarsulm are in question for new product allocations between 2031 and 2034, but the automaker said “alternative uses for these plants are being assessed.”
So What Happens Now, And How Soon?
An aerial shot of the Volkswagen factory and facilities in WolfsburgVolkswagen
Besides being one of Europe’s largest conglomerates, Volkswagen Group is by far the world’s biggest automaker, based on headcount of 628,000 employees, making it four times the size of General Motors, according to Bloomberg. In Germany, alone, VW has 284,000 employees.
The automaker’s current existential crisis – struggling with tariffs, falling sales in China, and excess manufacturing capacity – is reminiscent of General Motors as it landed in bankruptcy in 2009. Along the way, GM cut about 10,000 white-collar jobs and 26,000 hourly United Auto Workers jobs.
Bloomberg chart showing headcount for VW Group and other automakersBloomberg
Volkswagen, on the other hand, is targeting another 50,000 jobs to be culled by 2030, on top of the initially planned 50,000 reductions that have already resulted in separations for about 37,000 employees.
Can’t many of the future cuts be achieved through retirements and voluntary separations? If an automaker initiates a hiring freeze and can count on, conservatively, 5 percent natural attrition to thin out the workforce, that would mean 31,000 fewer jobs in just one year for a company the size of Volkswagen.
Tough To Retain Most Valuable Employees
VW plant in Chattanooga, Tennessee, produces 1 millionth Atlas SUV.Volkswagen
Analyst Sam Abuelsamid said the challenge with relying on attrition is ensuring that you retain the right people to accomplish your goals. When a company is in cost-cutting mode, “you’re more likely to lose your most valuable employees to competitors because they don’t want to stick around,” Abuelsamid, vice president of Telemetry Insights, told CarBuzz via email. “You also tend to retain those that don’t feel like they have anywhere else to go, and they may not be the people that are able to execute on transformation.”
No matter how the downsizing occurs, it will be painful, said Sam Fiorani, vice president of global forecasting for AutoForecast Solutions. Volkswagen’s German workforce carries an average age above 45, but only about 5 percent of workers are older than 60, Fiorani told CarBuzz via email.
“If Volkswagen were to not replace natural attrition and retirements, the local economies would be hurt by the lack of employment opportunities and the reduced income.”
–Sam Fiorani, AutoForecast Solutions
2017 Volkswagen Golf GTIVolkswagen
Natural Attrition Can’t Solve Assembly Plant Problem
Volkswagen’s Emden and Neckarsulm plants are significantly underutilized, making profitable operation very difficult, Fiorani said. “Zwickau is expected to lose a number of products over the next few years,” he said. “The fourth plant is Hannover, which is important for the commercial sector and will require relocation of the full-sized vans produced there, likely to a plant in Eastern Europe.”
Also on the table is serious restructuring of the VW Group’s eight automotive brands, which is happening now at Porsche, for instance. The Scout brand in the US would be VW Group’s newest, and the ninth. In Spain, VW Group’s Cupra brand, under the SEAT SA parent company, has a brighter future because of its focus on high performance, aggressive styling, and electrified models.
At Least One VW Group Brand On The Bubble
Front shot of a 2004 Seat Leon Cupra RSeat
But this week’s board approval places a bullseye on the mainstream SEAT brand, which is also under the SEAT SA umbrella. In a statement this morning that falls in line with Blume’s remarks, SEAT SA management said the SEAT brand’s future is under assessment, and the economics of electrification and demanding regulations “make the decision for further investment in the SEAT brand increasingly challenging.”
Without a significant turnaround by 2030, “a gradual phase-out of the SEAT brand” is being considered, SEAT SA said in a statement. Despite challenges in Spain and Germany, VW Group sounds more optimistic about North America, where it “will focus on the most profitable segments,” perhaps referring to Porsche, Audi, and Lamborghini, without naming them specifically.
Rear shot of a 2019 Porsche PanameraPorsche
CarBuzz Insight: Why This Matters:
Now that VW’s Supervisory Board has given its blessing to go “forward with full force” on Future Plan 2030, the automaker will cut its model portfolio in half, and the prioritized models will get more attention in terms of design and technology, with fewer variants offered.
The goal is to achieve higher sales volume per model, lower costs, and stronger economies of scale. But VW Group saying it will focus on the most profitable segments in North America raises a big question: Might the mainstream Volkswagen brand, which has struggled in the US for decades while other transplants have thrived, be on the bubble in America?
It’s a question that has been asked many times before, and it’s one with no clear answer.
