By Christina Amann
HANOVER (Reuters) – Volkswagen announced sweeping changes to its German operations on Friday, including more than 35,000 future job cuts and sharp capacity cuts in a latest deal between Europe’s biggest carmaker and unions to avoid mass strikes.
Union leaders called the deal a “Christmas miracle” after 70 hours of grueling negotiations, the longest in the company’s 87-year history. There would be no immediate closures or layoffs, and VW appeared to have backed away from demanding 10% pay cuts.
The deal that avoids costly strikes could also provide relief for investors after months of negotiations. Shares rose 2.4% in extended trading after the deal. They have lost 23% this year.
Volkswagen (ETR:) has been in talks with union representatives since September about measures they consider necessary to compete with cheaper Chinese rivals and deal with subdued demand in Europe and slower-than-expected adoption of electric vehicles.
About 100,000 workers have already staged two separate strikes last month, the largest in Volkswagen’s history, to protest the cost-cutting plans.
“With the package of measures agreed, the company has set a decisive course for its future in terms of costs, capabilities and structures,” Oliver Blume, CEO of the Volkswagen Group, said in a statement.
“We are now back in a position to successfully shape our own destiny.”
VW said the deal would enable annual savings of 15 billion euros ($15.6 billion) in the medium term and saw no significant impact on expectations for 2024. While there were no immediate closures, VW said it was exploring the potential for was investigating the Dresden factory and the repurposing of the Osnabrück site, including the search for a buyer. Some production would be moved to Mexico.
Car production at the Dresden plant was due to close at the end of 2025. VW AG staff will not receive a pay increase for the next four years under a collective labor agreement, while some bonuses will be canceled or reduced.
Production at VW’s largest plant in Wolfsburg will be reduced from four to two assembly lines.
“No branch will be closed, no one will be dismissed for operational reasons and our wage agreement will be secured for the long term,” said works council head Daniela Cavallo.
TALKING IN THE NIGHT
The fifth round of negotiations had been going on since Monday and continued well into the night in Hannover this week, with negotiators taking only short breaks to sleep and refuel on coffee, currywurst and fruit.
The future job cuts of 35,000 would represent about a quarter of VW’s workforce and would involve a reduction in the company’s network of German factories by more than 700,000 vehicles.
Thorsten Groeger, chief negotiator of IG Metall, nevertheless said that the cuts, which do not involve compulsory redundancies, are part of a solution to tackle overcapacity and would be carried out in a socially responsible manner.
European auto markets analyst Matthias Schmidt said: “35,000 job losses on the demographic curve until 2030 are probably not enough and over too long a period to address the current stagnation we see in the European market.”
He added: “I would say the unions could get more out of this than VW, but realistically this was probably the best they could realistically hope for due to the complicated structure of the company.”
Top shareholder Porsche SE welcomed Friday’s deal as a “significant improvement in Volkswagen’s competitive position”, adding that it was now crucial to implement the cuts.
CAMPAIGN ISSUE
The talks took place in a dated, simple business hotel on the outskirts of Hanover, where delegates from both sides met in several rounds sometimes interrupted by coffee and fruit breaks until well after midnight.
Some workers played a round of cards to decompress.
The crisis at VW has struck at a time of uncertainty and political unrest in Europe’s largest economy, as well as broader unrest among the region’s carmakers.
The question of how to fix Germany’s sluggish growth has taken center stage as a campaign issue ahead of February’s snap elections, as Chancellor Olaf Scholz, trailing in the polls, has urged VW to open all its factories keep.
Scholz welcomed a “good, socially acceptable solution” on Friday evening, adding in a statement: “Despite all the hardships, it ensures that Volkswagen and its employees can look forward to a good future.”
Alexander Krueger, chief economist at Hauck Aufhaeuser Lampe Privatbank, said at first glance it seemed like a compromise the parties could live with.
“Other companies are also pursuing job-cutting plans, and VW appears to be just the beginning,” he said. “Competitive pressure on prices is likely to require further adjustments at a later date.”
Former Volkswagen bosses, including Herbert Diess and Bernd Pischetsrieder, failed in their attempts to implement far-reaching changes at the Wolfsburg-based carmaker, while unions remained steadfast.
IG Metall’s strike threat was a powerful bargaining chip. UBS estimates that each strike day in Germany has cost Volkswagen up to 100 million euros in revenue and around 20 million euros in operating profit, based on 2,000 to 3,000 fewer vehicles produced per day.
($1 = 0.9579 euros)
