Volkswagen's decision to consider closing some of its factories in Germany as part of a €10 billion ($11 billion) cost-cutting plan has sent shockwaves through the country's automotive industry. The move, coupled with the early termination of a 30-year employment protection agreement, is seen as a historic shift for the company and a broader signal of trouble in Germany's industrial sector.
The fact that groundbreaking technologies in the automobile industry have come from China and the U.S. in recent years has been a matter of debate in Europe.
German automakers face competition from electric car maker Tesla as well as inflationary pressures, high energy costs, slow economic growth in Europe and competition from Chinese automakers.
The transition to electric vehicles (EVs) remains challenging for Germany's automotive sector following the implementation of various regulations and supply chain disruption. The sector is struggling with surging costs while realizing major investments in battery technology.
As part of cost-cutting and savings measures worth around €10 billion ($11 billion), Volkswagen said last week that it was considering closing some of its factories in Germany, where it employs about 300,000 people, for the first time in its 87-year history.
While German automotive suppliers such as Bosch and Continental, which are among the world's largest, and other European automakers have resorted to laying off tens of thousands of workers due to declining margins and demand, Volkswagen, which signed a job security agreement in 1994, has not been able to reduce its workforce.
After taking the helm two years ago, Volkswagen Group CEO Oliver Blume planned to reduce personnel expenses by a fifth by 2026.
But after failing to meet its target of saving €3 billion in two years, Blume last week pushed for more. He announced plans to consider closing factories in Germany, cancelling the company's 30-year job security guarantee.
This has fueled discussions about the automotive sector in the country and deeply affected the automotive market.
Volkswagen's management said last week that restructuring based solely on demographic trends is not enough to make the necessary structural adjustments in the short term to increase the company's competitiveness and announced that the closure of vehicle and parts production facilities is inevitable in the current situation.
Following the announcement of the plan, management began talks with employees and their representatives. However, labor unions and the work council said that closing factories was unacceptable.
The meeting between Volkswagen's management and workers last week began with banners protesting the company's latest austerity plans.
In the face of the crisis at Volkswagen, top politicians have demanded more help from Brussels. German politicians have accused the European Union of putting numerous obstacles in the way of carmakers.
German Economy Minister and Deputy Chancellor Robert Habeck stressed that Volkswagen bears a huge responsibility not only for Germany's renowned automotive industry but also for its future as an industrial powerhouse and must remain so.
According to the Munich-based Ifo Institute for Economic Research, 70% of cars manufactured in Germany are exported to the UK, France, Italy, Spain and the US. China has also become an important export destination for German manufacturers in recent years due to its market size.
The crisis at Volkswagen has also prompted the German government, which ended its subsidies for electric vehicles late last year, to announce potential new tax breaks for battery-powered cars.
According to a draft law prepared by the German government after it ended green incentives for electric vehicles last year, companies will be able to cut up to 40% of the value of newly purchased electric and qualified zero-emission vehicles from their tax bills.
