Volkswagen Braces for Crunch Talks on Cost-Cutting Amid Factory Closures

Volkswagen's management faces intense discussions with workers at a meeting to address significant cost-cutting measures, including potential factory closures in Germany. Financial chiefs will outline the plans while labour representatives voice strong opposition. The talks could significantly impact Germany's economic stability amidst heightened political and market challenges.

Volkswagen management is set to face workers in a critical meeting at its Wolfsburg headquarters on Wednesday, as the automaker seeks to implement deep cost reductions, including factory closures in Germany, to boost profits for its namesake brand. Chief Financial Officer Arno Antlitz and VW brand chief Thomas Schaefer are expected to outline the company's strategic plans during the meeting.

Daniela Cavallo, head of the works council, has already signaled her staunch opposition to the proposed cuts. The potential site closures at one of Germany's most iconic companies have raised additional concerns for Europe's largest economy, which is already grappling with slow growth, diminished export demand, higher costs, and strong international competition.

In the wake of regional elections that boosted far-right support, Chancellor Olaf Scholz has prioritized Volkswagen, coordinating efforts with company executives and union members. Labour Minister Hubertus Heil has pledged support but emphasized that Volkswagen must first secure employment and prevent closures. Business sentiment in Germany's automotive industry has also declined further, according to the Ifo economic institute.

Volkswagen announced Monday that it might take the unprecedented step of closing factories in Germany, ending longstanding job guarantees at six plants as part of a €10 billion ($11 billion) cost-cutting initiative. The company aims to achieve a 6.5% profit margin by 2026, up from 2.3% in the first half of this year. Unions, set to negotiate wages in October, insist on broader discussions regarding Volkswagen's options, according to IG Metall union representative Thomas Knabel.

The union, a significant force with representation on Volkswagen's supervisory board, cannot contemplate negotiations without the company retracting its threat of plant closures. Knabel emphasizes the need for agreed rules. Management attributes financial challenges to Germany's economic climate and new market competitors, while labor representatives blame inefficient production strategies and slow investment in electric vehicles. Investors and analysts agree that swift decisions on cost-cutting are necessary, though achieving consensus will be complex.

(With inputs from agencies.)