Volkswagen has given the IG Metall trade union notice it is scrapping labor agreements, including a promise not to make redundancies at six German auto plants before 2029.
The move was made after the company’s management warned earlier this month that it could shut plants in Germany for the first time since Volkswagen was founded in 1937.
The employment guarantees, which date back decades, are being sacrificed as part of a cost-cutting drive as Volkswagen adjusts to cut-throat competition in the electric vehicle market from cheaper Asian auto manufacturers, especially from China.
Volkswagen CEO Oliver Blume said the company must cut costs to remain competitive.
Volkswagen, which also owns Audi, plans to reduce costs by more than 10 billion euros ($11 billion) by 2026.
In a statement, IG Metall said: “These cancellations arrived seconds ago.”
Negotiations were due to start in October, although strikes were forecast before the end of the year.
The head of Volkwagen’s works council, Daniela Cavallo, has promised there would be fierce resistance to redundancies and plant closures and has blamed underperforming management.
“Volkswagen’s problem is upper management isn’t doing its job,” Cavallo said.
“There are many other areas where the company is responsible. We have to have competitive products, we don’t have the entry-level models in electric cars.”
In May, Volkswagen finance chief Arno Antlitz warned that the automaker had two or three years to prepare for competition from China, which can produce electric vehicles at lower prices.
Tuesday’s move is also a blow to German Chancellor Olaf Scholz, whose popularity has crashed among economic woes and growing resentment towards his government’s immigration policies.
Scholz has spoken to Volkswagen management and workers but has stressed the issue is a matter for the company and its workers.
IG Metall has previously offered to move to a four-day week as an alternative to closures, copying a successful cost-cutting move from the 1990s.
But this time round Volkswagen faces not just economic uncertainty and weak growth in Germany, but higher energy prices and an aggressive export drive from Chinese automakers such as BYD, Chery, Leapmotor, and SAIC.
Chinese Shrug Off Investigation
In June, the secretary general of the China Passenger Car Association Cui Dongshu said manufacturers would not be deterred by the probe.“Chinese enterprises will continue to unswervingly develop in Europe and integrate into local markets,” he said.
If, after its investigation, the EU introduces import tariffs on Chinese-made EVs, as Canada did recently, then the Chinese companies may build plants in Europe to get around the tariffs.
The ending of the labor agreements in Germany also coincided with bad news for Volkswagen in the United States.
The Highway Traffic Safety Administration said Volkswagen had agreed to recall 98,806 electric SUVs after tests suggested their door handles do not offer enough protection against water ingress.
Cole Smead, CEO of Smead Capital Management, a Volkswagen shareholder, said: “This is one of the largest car producers in the world which is not producing large returns out of all that scale.
“Do I think they can sustain that level of production in a country that demands so little? It’s impossible.”
DZ Bank analyst Michael Punzet said he expected Volkswagen to cut its annual group profit margin target again when it publishes third-quarter results.
It cut the target to 6.5–7.0 percent in July due to the cost of possibly closing an Audi factory in Brussels.
Volkswagen has never closed a factory in Germany and last closed a plant in 1988, in Westmoreland, Pennsylvania.
