Volkswagen will cut 100,000 jobs in the largest restructuring in the history of the automotive sector. For several years the German group, the largest car manufacturer in the world, has been in crisis due to the collapse of the fundamental pillars on which its business model was based: low-cost energy in Germany and China as an outlet market in which to grow.
The company therefore decided to downsize significantly, cutting costs and focusing exclusively on the markets and models that generate the most profit.
Volkswagen will cut 100 thousand jobs
Last week, Volkswagen proposed to its supervisory board a plan to cut 50,000 additional jobs compared to the 50,000 already foreseen in the previous restructuring plan, reaching 100,000,000 fewer jobs in total. The renovation is expected to be completed in 2030.
The supervisory board is a body typical of the German corporate structure and which carries out all the supervisory roles that a board of directors normally has, and therefore must approve extraordinary plans, such as the cutting of 50 thousand jobs. It is made up of 10 shareholder representatives and 10 worker representatives.
The largest renovation in automotive history
No automaker has ever cut 100,000 jobs in a single restructuring. Before this operation by Volkswagen, the record belonged to General Motors, which in 1991 fired 74 thousand people and closed 21 plants due to Japanese competition.
Even in relative terms, Volkswagen’s restructuring is unparalleled among large automotive companies. The Volkswagen Group has 663,000 employees, so the cut is equivalent to around 15% of workers. In 1990 GM had 761,000 employees, so the US company laid off just under 10% of its workers.
What caused the Volkswagen crisis
The Volkswagen crisis has several causes, ranging from the ecological transition to US tariffs. Such a major restructuring, however, only happens when a company’s entire business model starts to no longer work. Beyond the contingent circumstances, therefore, there is also a fundamental problem in the way in which the German group made profit.
Volkswagen had built its fortune on two pillars:
- low-cost energy, which Germany obtained mainly thanks to gas imports from Russia;
- China as the main outlet market, where the German group dominated.
In the space of a few years, both of these pillars have disappeared, with the war in Ukraine on the one hand and with competition from Chinese companies on the other. Tariffs and transition were only aggravating factors in a very profound model crisis.
How Volkswagen wants to respond to the crisis
However, Volkswagen remains the largest automotive group in the world. However, it wants to cut costs, especially in Europe, where it produces 500,000 more cars than the market demands every year. The plan includes:
- a review of the use of the factories in Emden, Zwickau, Hannover and Neckarsulm;
- the 50% reduction in the number of models across all brands;
- the possible sale of some brands, including Seat and the Italian Ducati.
This should solve the cost problem in Europe, given the end of Russian gas supplies. As regards China, the group intends to look for new markets, especially in the South of the world.
The result should be the sale of 9 million vehicles per year by 2030, slightly more than the 8.98 million in 2025 but significantly less than the almost 11 million in 2019. The net operating margin should reach 9%, much better than the 7.6% in 2019, with 135 million euros that will be invested in research and development.
