Volkswagen (VW) is preparing for a massive conflict with its unions after scrapping a series of agreements on Tuesday, less than a week after the company revealed it was considering closing at least two plants in Germany and laying off tens of thousands of workers.
The driver of this hardline approach is the drop in demand for cars across Europe and countries like the United States, which has left the company with 680,000 workers globally producing just over 9 million vehicles per year. In contrast, Toyota produces 10 million vehicles with 380,000 workers.
Tuesday's announcement that it was ending six labour agreements has intensified the standoff with unions and its works council.
“The company sees itself forced to do so because of the current economic challenges,” Volkswagen said in a statement.
Volkswagen announced it was ending its employment protection agreement, which had been in place for its German workforce since 1994, as well as a wage agreement for employees in specialist or leadership positions.
It also revealed it was scrapping agreements for temporary workers and those stipulating that the company must hire apprentices who have completed their training.
“The current phase contributes to uncertainty. We can counter this if we create future-proof perspectives for our company soon. That applies to the company as well as to wage agreement levels,” Volkswagen's human resources chief, Gunnar Kilian, said in the statement.
Volkswagen stated that job security for employees would remain in place until 30 June next year. The company indicated it would begin negotiations on new agreements with the unions, adding that it would now start discussions with worker representatives.
In a counter-statement on Tuesday, VW Works Council head Daniela Cavallo reiterated that there would be resistance to Volkswagen’s plans.
“Now the company has actually done what we have been expecting for days. And it remains the same: we will put up fierce resistance to this historic attack on our jobs. With us, there will be no layoffs,” she said.
Thorsten Gröger, lead negotiator at the powerful German union IG Metall, said on Tuesday that there would be objections to the end of the employment protection agreement and the potential closure of plants.
“We will not accept this silently and without action,” he said in a statement.
Analysts say other German car companies are facing similar problems, including weak sales and demand, a stalled transition to electric vehicles (which are high-cost compared to Chinese EVs), and the need to cut costs and staffing levels like VW.
It is not just VW experiencing difficulties among German car giants—luxury rival BMW has downgraded its 2024 outlook due to weak demand in China and the cost of repairing a problematic part in a braking unit in around 1.5 million new vehicles.
This caused shares to fall more than 11% to two-year lows on Tuesday.
BMW said delivery hold-ups linked to the braking system would negatively affect sales in the second half of the year, adding that more than 1.5 million cars were affected.
Around 1.2 million of those vehicles have already been delivered to clients and can be remotely checked for faults via over-the-air software, but the remaining 320,000 vehicles cannot be handed over to buyers yet and must be inspected.
BMW stated that the warranty costs, termed a “high three-digit-million amount,” would impact its third-quarter margins. Consequently, the company revised its earnings before interest and tax (EBIT) margin forecast for 2024 to between 6% and 7%, down from the previously forecasted range of 8% to 10%.
Regarding China, BMW said demand for vehicles remained muted, as confirmed by weak sales figures in June, July, and August.
“Despite stimulus measures from the government, consumer sentiment remains weak,” BMW stated.