Summary of the official labor negotiation deal
- Labor costs will be reduced by 1.5 billion euros per year.
- Capacity across German plants will be reduced by 734,000 units.
- The agreement provides for reduction of 35,000 jobs across German plants by 2030.
- These measures, among others, will lead to reduction in costs by more than 15 billion euros over the medium term. Of this, 4 billion euros will come from labor costs reduction, structural and production measures and plant utilization.
- As already indicated by Reuters, Volkswagen doesn’t expect these cost effects to have significant impact on the 2024 outlook.
- Volkswagen said it will make a full and final assessment on the impact of these cost effects on 2025 and subsequent year’s operating result in the coming weeks.
- As part of structural changes, production lines will be reduced to two from the current four and production of Golf will be completely moved to Mexico from 2027.
Assessment
Overall, the outcome of the negotiation was very positive, much better than I expected. However, implementing the structural changes could be a problem, leading to less cost benefits. I will consider the cost effects in my next valuation model update.