Why the carmaker is cutting models and facing pressure from Chinese electric vehicle competition
Jack Ewing, Theresa Rauffmann and Jim Tankersley
Volkswagen says it would cut the number of models it offers by as much as half to reduce costs and better compete with Chinese companies. But the German carmaker did not say what those changes would mean for workers who have been bracing for large job cuts and factory closures.
The plan, released after a board meeting, seemed to be a tacit acknowledgment that the company had got too big and complicated, and needed to slim down to survive the global shift from fossil fuel cars to electric vehicles, a transition that has upended many established carmakers and enabled the rise of Chinese automakers.
“Geopolitical tensions, rising costs — driven primarily by tariffs — growing regulatory requirements and an increasingly intense global competitive environment have compounded the challenges facing the automotive industry in an already far-reaching phase of transformation,” Volkswagen said in a statement.
In recent days, German press reports had suggested that the company was preparing to lay off 100,000 workers by the end of the decade and close four factories in Europe.
Such drastic cuts would be out of character for Volkswagen and German industry, which tend to prefer gradual changes. Labor representatives and political leaders from the German state of Lower Saxony have a majority on the company’s 20-person supervisory board and had signalled they did not support deep cuts.
In Neckarsulm, in south-west Germany, where 15,000 workers assemble models for Volkswagen’s luxury Audi brand, residents fear a plant closure would devastate a local economy built around the rhythms of factory shifts.
“If Audi dies, everything here dies,” said Cayli Halin, 54, who works in the plant’s testing centre.
Left unclear by Thursday’s announcement was how many of Volkswagen’s 657,000 employees worldwide could lose their jobs as the company reduces production. The company’s profit fell 28 per cent in the first quarter to €1.6 billion ($2.64 billion) and its sales were down 2 per cent.
Volkswagen’s Porsche unit, which has usually provided a large share of profits, has suffered from US President Donald Trump’s 25 per cent tariffs on imported cars. Porsche sports cars and sport utility vehicles are manufactured in Germany and exported to the United States, one of the brand’s most important markets.
Volkswagen’s troubles are an ominous sign for established Western and Japanese carmakers. To varying degrees, all of them are grappling with changing technology and competition from Chinese manufacturers like BYD and Geely that are selling cars packed with luxury features for relatively low prices.
In the European Union and Britain, Chinese automakers collectively sold more vehicles in May than Japanese carmakers, according to data from the European Automobile Manufacturers’ Association.
Encouraged by government subsidies, Chinese carmakers began focusing on electric vehicles years ago, investments that have given them a strong advantage as more Europeans buy such models. About one in five new vehicles sold in Europe is electric, and sales have surged this year because of the increase in fuel prices caused by the war with Iran.
Volkswagen is particularly vulnerable because for many years a lot of its profit came from selling cars in China, where it was once the top automaker. The company’s sales in China plunged 20 per cent in the first quarter after falling significantly for several years.
Fears of plant closures have rattled Germany, where the automobile industry — and Volkswagen in particular — occupy hallowed spaces in the national consciousness and are a pillar of the national economy.
Chancellor Friedrich Merz and his government have attempted to boost the industry with new subsidies and by pushing EU officials in Brussels to relax automotive regulations, among other steps, in hopes of helping German automakers compete better with Chinese rivals.
Merz did not address the rumoured Volkswagen layoffs ahead of Thursday’s board meeting, but a spokesperson, Stefan Kornelius, told reporters last week that “our goal is to prevent plant closures in Germany”.
Ali Alp Cagan, 31, has worked as an information technology professional at Audi for almost two years and isn’t personally worried about layoffs because he considers his job prospects to be strong.
“Overall, however, the situation is already nervous,” he said.
Cagan and other workers leaving the plant for a recent shift change blamed the company, saying it had failed to innovate and that China now builds cheaper and better cars.
This article originally appeared in The New York Times.
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