Volkswagen announces pay cuts as profits fall

Jordan Mulach

Volkswagen has asked its German employees to take a 10 percent pay cut as the auto giant struggles with rising costs, falling demand and increasing competition from China.

Overnight, Volkswagen announced the first public round of collective labor agreement negotiations with the works council, which also included the proposed pay cuts.

“Successful operations are a prerequisite for job security. And that is our goal,” said Volkswagen chief negotiator Arne Meiswinkel.

“So one of the things we have to do is reduce our labor costs. A decisive instrument here is to reduce labor costs to a competitive level compared to the sector benchmark.

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“Even if Volkswagen were to cut wages, they would still be very attractive compared to the sector as a whole.

“We, the parties to the collective bargaining agreement, must share responsibility and take consistent action to ensure our future success.

“In a difficult situation like the current one, we all have to work together. This is something that has always distinguished Volkswagen and will continue to do so in the future.”

While the announcement focused on finances for employees, there was no mention of the reported possibility that the automaker could close three of its German factories, as claimed earlier this week by works council head Daniela Cavello.

However, Mr Meiswinkel hinted that changes are coming, claiming that German brands in particular are at greater risk of threats from overseas rivals.

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“We are very concerned about the current trend in the automotive industry in Europe, and especially in Germany as a business location.says Mr Meiswinkel.

“The deterioration of Volkswagen’s figures over the last quarter, especially for the Volkswagen brand with a margin of only 2.1 percent, makes this particularly clear. If we stay at this level, we will not be able to finance our future.

Volkswagen’s negotiating representatives and the works council will meet on November 21.

The pay cut announcement is Volkswagen’s first official proposal to cut costs after recent reports that it wanted to make changes.

The carmaker announced its third quarter financial results overnight, with operating profit for the current year falling 21 percent compared to the first nine months of 2023 – reaching 12.9 billion euros at the end of September ( $21.3 billion).

Profit after tax was 30.7 percent lower than the first nine months of 2023, and 63.7 percent lower than the third quarter of this year compared to the third quarter of 2023.

While sales in North America increased by four percent and in South America by 16 percent compared to the first nine months of 2023, European sales fell by one percent and Chinese sales fell by 12 percent.

Last month, Reuters reported that the Volkswagen Group is targeting savings of €10 billion (A$16.3 billion) by 2026. At the time, the automaker’s works council said at least one car plant and parts plant were considered “obsolete.”

Volkswagen finance chief Arno Antlitz later attended a meeting of 25,000 employees at the company’s headquarters in Wolfsburg and said they needed to work with management to cut spending.

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Thomas Schäfer, CEO of the Volkswagen brand, reportedly said that the company’s German factories were operating 25 to 50 percent above target costs, which was part of the company’s desire to cut expenses.

Previous claims from analysts have said that Volkswagen’s factories in Osnabrück and Dresden are two of the most likely to be closed.

Volkswagen Group Australia, which has no plans to switch to electric vehicles (EVs) anytime soon, told its European parent AutoExpert Earlier this month, the overseas cost cuts are unlikely to impact local operations.

“Our situation in Australia is unique in so many ways, not least the fact that our relationship with electric cars is maturing,” said Paul Pottinger, general manager of corporate communications for Volkswagen Group Australia.

“It is not fully fledged or completed like in Europe – we are a completely different state.”

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