The details are still scanty. The company hasn’t even published the plans in its websites. The plans were picked from internal memo shared between management and employees. Probably we will get more insights tomorrow when the CEO and CFO meet with the unions to discuss the plans.
However, in the past, analysts touted Osnabrueck and Dresden as potential targets for closure. Osnabrueck has around 2,300 workers, estimated to have a capacity of 100,000 vehicles and is used to produce T-Roc Cabriolet, Porsche Cayman and Porsche Boxster. However, a recent analysis by Automobilwoche established that its capacity utilization is around 18%. Porsche moved some production of the 718’s to Osnabrueck from its main plant Zuffenhausen in mid-2023 due to overflow. Volkswagen plans to end the production of the T-Roc Cabriolet which had sales of 11,693 units in the first 11 months of 2023, in 2025. Hence, given current demand situation and the decision to end the sale of the 718’s in Germany in July 2024, Zuffenhausen plant which has undergone upgrades for the future should now be sufficient.
In September last year, Bloomberg reported that Dresden plant which employs around 300 people and has annual operating costs of between €60 million to €70 million was being considered for closure.
Given the mention of a “large plant” in the statement, I think the mostly likely casualty is the Osnabrueck plant. Assuming each worker earns 70 euros per hour including benefits (in 2010, average auto worker in Germany earned $67.14 per hour in salary and benefits), that would be a cost-saving of around 293 million euros per year (70x35x52x2300) or around 1.6% of 2023 net profit (17.9 billion euros). However, the cost-savings from plant closures, according to the company, is expected to be within the 10 billion euros (not additional).
Apparently Volkswagen has a capacity of 14 million cars while only producing 9 million which gives it room to shut down plants without the need to construct more plants or reducing output.
When I first read „large factory“ I thought they might consider to shut down a larger one like the one in Emden.
I think in any case long term cost savings are likely higher as there is probably a significant cost to maintain and upgrade existing plants.
Maybe as an analogy we can learn how much they saved or plan to save from shutdowns of other plants like the one in Brussels.
I assume that there has been no analyst or expert commentary which exact plants might be shut down and what the impact of it will be?
Nothing definite. But according to a CNBC reporter, based on what the labor unions reported, they could shut down Dresden and Osnabrueck plant (min 6:00).
Dresden is expected to lead to a cost savings of 20 million euros a year. Going by that and the proportion of employees in each factory, we arrive at a cost-saving of around 153 million from Osnabrueck closure. However, the Dresden plant is very minor- according to Bloomberg, it has has no body manufacturing, paint shop or pressing plant, hence the cost savings from Osnabrueck closure could be much higher.
By the way the decision on whether to close the Brussels plant hasn’t been decided yet. Audi said today that an investor to take over the plant hasn’t been found.
According to Ferdinand Dudenhoffer, director of Center Automotive Research (CAR) in Bochum, Volkswagen is likely to close factories outside Lower Saxony since the state government (which has 20% stake) and the IG Union would fight against it.
He thinks that factory closures will likely happen in Bremen, Kassel or Zwickau.
Apparently, the Lower Saxony can veto any decisions affecting the factory since such plans need to be passed a two-third majority.
Additionally, there is now internal talks of cutting 20,000 jobs.
I=4
German IG Metall Union is open to a shorter work week, its chief Christiane Benner said when asked whether the union is open for a 4-day work week.
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In an interview with Bild am Sonntag, CEO Oliver Blume hinted that layoffs will not be drastic which will be a challenge since 5 billion euros will need to be saved.
“We are firmly committed to Germany as a location, because Volkswagen has shaped entire generations,” he said. We have employees whose grandfathers already worked at Volkswagen. I want their grandchildren to be able to work here too."
In a separate interview with Handelsblatt, he said that the entire cost-chain must be reviewed.
I=5 Volkswagen said it will scrap six labor agreements paving way for layoffs next year
Volkswagen announced today that it will scrap six labor agreements including one that protected jobs until 2029, paving way for layoffs.
The company said the current job protection for employees remain in place until 30 June 2025.
VW Works Council president Daniela Cavallo reiterated that they will fiercely fight the changes.
This comes after the company announced last week that it will no longer rule out plant closures in Germany and putting an end to the employment protection agreements.
Jefferies expects Volkswagen to book 3 billion to 4 billion euros in restructuring costs in Q4, says more than 15,000 jobs could be laid off
Buy, €140: Jefferies analyst Philippe Houchois said that in a roadshow with the management, they noticed a new feeling of determination to reign in on costs.
He expects the management to book between 3 billion and 4 billion euros in restructuring costs in the fourth quarter.
Jefferies also expects Volkswagen to layoff more than 15,000 workers.
They pointed out that Volkswagen is in a position to close plants without needing the approval of the supervisory board and that they are considering closing two to three plants.
Jefferies added that the management told analysts that they don’t have any back up plan in case talks with the labor unions fail.
I=3Audi Brussels witnesses mass protests over Audi Plant closure
Over 5,000 protestors gathered around the European Parliament in Brussels putting more pressure on EU Commission’s president Ursula von der Leyen to protect the industry.
Recently, former European Central Bank President Mario Draghi asked the EU to invest €800 billion to make the region more competitive, “Do this, or it’s a slow agony," he said.
However, at the DLD Nature Conference, Ursula signaled that she remains undeterred in achieving the region’s goals.
“We all know change can be so scary,” she said. “It takes an effort to leave our old habits behind. It takes courage to sail into uncharted waters.”
I=4 Volkswagen-SAIC plans to close Nanjing plant, Bloomberg reported
Volkswagen and its joint venture partner SAIC are planning to close Nanjing factory in China as early as next year due to a decline in the demand for electric vehicles, Bloomberg reported citing people familiar with the situation.
Nanjing plant which is use to make Passat and Skoda cars has annual capacity of 360,000 vehicles.
In 2023, Production at VW’s 39 Chinese plants were more than 25% lower than the pre-pandemic peak (4.1 million vehicles).
A second plant is also under review and could be overhauled or shutdown.
“All SAIC Volkswagen factories are operating normally according to the market requirements and our forecast,” VW China responded to Bloomberg. “we are also transforming vehicle production and the components plants step by step.”
I=7 Volkswagen could cut 30,000 jobs, Manager Magazin reported
Volkswagen plans to cut 30,000 jobs in the medium term, Manager Magazin reported citing insiders.
The newspaper also pointed out that Volkswagen wants to reduce investments by up to 20 billion euros to 160 billion euros over the next five years (Volkswagen budgeted 170 billion euros for the 2025-2029 planning period).
A Volkswagen Spokesperson did not confirm the 30,000 job cuts but said that savings is needed.
According to the Magazin, research and development department could be hit hard, forecasts indicate around 4,000 to 6,000 out of 13,000 positions in Germany could be lost.
This comes after the company announced that it will scrap labor protections and consider closing plants in Germany.
Assessment
There have been many speculations over the number of employees that Volkswagen could cut. The number ranges from 15,000 to 30,000. Given CFO’s comments that Volkswagen is losing 500,000 vehicles per year. The speculated range may not be far from the truth. For instance, Emden plant produces 180,000 vehicles annually and has over 8,000 employees. That means, a 500,000 capacity plant will have around 22,000 employees. But that of course depends on the efficiency of the plant. Closing such a plant would lead to around 2.8 billion euros savings in employees salaries and benefits per annum (22,000x70x35x52). However, laying off such these employees will lead to a restructuring cost of around 4 billion euros, according to Jefferies estimate. While this is good considering the circumstances, I don’t like that research and development is expected to be hit hard given that Volkswagen is still behind rivals when it comes to software development. The company is probably betting on partnerships.
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Germany Economic Minister Robert Habeck said the government is looking for a way to support Volkswagen restructuring process.
“The state (Lower Saxony) and the federal government are thinking about how we can support the company,” Habeck said. “It is clear that the company and the jobs there are of outstanding importance for Germany.”
I=7VW Brand Volkswagen weighing a 10% wage cut and a two-year freeze on wage increases at the Volkswagen brand, leading to cost savings of 4 billion euros-Handelsblatt
Volkswagen board is weighing reducing wages by 10% and freezing wage increases for two years at the Volkswagen brand, a plan that will save the company 4 billion euros, Handelsblatt reported citing company insiders.
Other measures include capping bonuses for top-tier employees, reducing bonusses associated with employee anniversaries and possible closure of German plants.
It’s unclear yet whether this is a deviation from its earlier plan to cut costs by 10 billion euros by 2026 or the 4 billion cost-savings is part of it.
I=3, Audi Audi is looking to cut 4,500 indirect jobs in Germany over the medium term
Audi is looking to cut 4,500 indirect jobs in Germany over the medium term, the Manager Magazin reported.
The company confirmed to Reuters that it’s in negotiations with workers’ representatives but didn’t comment on the number of job cuts.
Assessment
Assuming an hourly rate of $70 (inclusive of benefits), the job cut will result in annual cost savings of 573.3 million euros (4,500x70x35x52). However, given the job cuts will occur over the medium term, the annual cost-saving could be around 100 million euros.
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Buy, €140: Analyst Philippe Houchois of Jefferies notes that the market seems to doubt that the plant closures is possible and misunderstands that discussions on wages/jobs are separate from plant closures.
IG Metal Union is willing to make concessions amounting to €1.5 billion, below Volkswagen’s target of €4 billion, industrial action in December remains high
IG Metal Union says Volkswagen brand workers are willing to make concessions amounting to 1.5 billion euros in the ongoing negotiations with Volkswagen.
The union said anything beyond that will lead to far-reaching conflict with the carmaker.
Volkswagen is looking to save 4 billion euros in its measures that are subject to the negotiations.
Tomorrow’s next round of negotiation is likely to mark the last negotiation given that an agreement to refrain from industrial action will expire on November 30.
Volkswagen CFO Arno Antlitz said in Q3 2024 earnings call that they are seeking a significant benefit from the negotiations with the labor unions.
“But only I can say we need to make sure that the compromise we find will be significant. So that Volkswagen can achieve the 6.5% margin and can go – move into a profitable and successful future”, he said. " But of course, I cannot rule out strike."
Assessment
Given the large difference between Volkswagen’s number and that of IG Metal, I think the possibility of a strike in December is high. Based on 2023 production numbers, a strike will lead to a daily output loss of around 7,600 units. This assumes that Porsche and Audi workers will also participate in the strike and all plants will be affected. Recently, Porsche workers participated in IG Metal’s industrial actions. My guess is that Volkswagen will tolerate the strike for a few days (maybe 10 days) before reconvening the negotiations and offering a better offer. That will lead to an headwind of around 76,000 units in the month of December.
I=5 Negotiations on wages and plant closures to continue on December 9, IG Metal asks its members to go on strike starting from December 1
IG Metal told its members to go on strike starting from December 1 as negotiations on wages and plant closures continue.
Volkswagen said the collective agreement that’s being renegotiated affects 120,000 employees at the plants in Wolfsburg, Braunschweig, Hanover, Salzgitter, Emden and Kassel.
Braunschweig, Salzgitter and Kassel plants are used to make vehicle components while Wolfsburg, Hannover and Emden produce around 800,000 units a year. That means a strike in December would lead to an output headwind of around 3,000 units per day.
The next round of negotiation has been set for December 9, after an expiry of peace obligation for the collective wage agreements.
