Volkswagen Faces Potential Strike Amid Cost-Cutting Efforts
Assembly line at a car factory. X/ @SowetanLIVE
September 27, 2024 Hour: 7:26 am
The German company reported an 11 percent drop in operating profit for the first half of this year.
IG Metall, one of Germany’s most powerful unions, is considering strikes over Volkswagen’s proposed job cuts, signaling that the German carmaker’s efforts to reduce costs may face challenges.
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Volkswagen and IG Metall met on Wednesday in Hannover for the first round of collective bargaining. The two sides remain far apart, with IG Metall saying a strike could be called in December. This was the first meeting between the carmaker and the union since Volkswagen announced plans to terminate job security contracts. The company said earlier this month that it is considering closing plants in Germany and scrapping some labor agreements, including a guarantee of jobs until 2029.
The announcement marked a significant shift for Volkswagen, which has never closed a plant in Germany in its 87-year history. Thomas Schaefer, Volkswagen brand chief, explained in a letter to staff that layoffs were being considered because the company’s financial situation had been “extremely intense” and other cost-cutting measures had proven insufficient.
The company reported an 11 percent drop in operating profit for the first half of this year. Despite a slight 1.6 percent rise in sales to 158.8 billion euros in the same period, high costs have been explained by shrinking profits. Volkswagen Group CEO Oliver Blume said that the European auto market is in “a serious situation.”
Chief Financial Officer Arno Antlitz said that European car sales have dropped sharply since the pre-pandemic era, with Volkswagen selling 500,000 fewer cars than in 2019, roughly the equivalent of two plants’ production. Volkswagen launched an ambitious initiative in 2023 to cut costs by 10 billion euros (US$11 billion) by 2026.
Although Volkswagen has managed to weather the “demanding situation,” profit margin has been a long-standing issue. The company’s passenger car division recorded a slim 0.9 percent profit margin in the second quarter, down from 4 percent in the first quarter. Volkswagen’s cost-cutting program aimed to lift its profit margin to 6.5 percent by 2026.
Volkswagen employs about 120,000 people in 10 plants in Germany. Local German media reported that up to 30,000 could be cut. In addition to excess capacity, Volkswagen faces more challenges. The company has been criticized for being slow to transition to electric vehicles.
A lack of affordable electric vehicle models is considered one of the most prominent factors that hold back the development of the Electric vehicle (EV) market in Europe. Volkswagen, known for its history of building “people’s cars,” plans to launch a low-cost EV car at 20,000 euros in 2027.
teleSUR/ JF Source: Xinhua
