FRANKFURT: Volkswagen’s board of directors on Thursday approved a sweeping cost-cutting plan that would cut 50,000 jobs, slim the company's model line by half and end auto production at four German plants.
The plan put forward by CEO Oliver Blume to counter low-cost competition in China and headwinds from U.S. tariffs overcame resistance from employee representatives and the regional government, which holds a stake in the company.
“This is a strong signal for the future of Volkswagen Group,” Blume said in a statement. The plan would “make our iconic brands even more attractive, stronger and competitive.”
The plan foresees reducing the number of models by around 50%. The company said it had excess production capacity of 500,000 vehicles in Europe and that “a competitive future production allocation ... cannot be secured” for plants in Emden, Zwickau, Hanover and Neckarsulm, although alternative uses will be explored. The board statement said there would be an “adjustment of the employee numbers of around 50,000 positions,” including management jobs.
Slimming the number of models would mean higher volumes per model, lowering fixed costs.
The plan also calls for “leaner leadership structures and shorter lines of decision.”
Thursday’s news release was accompanied by a statement from chief employee representative Daniela Cavallo that the plan was “a necessity for our company to move successfully into the next decade without the associated undertakings coming only on the side of the employees.”
Cavallo had been strongly critical of the plan when it was presented over the summer. Worker representatives have half the seats on the board, while the government of the Lower Saxony region where Volkswagen is headquartered has two seats.
The governor of Lower Saxony, Olaf Lies, said that the company was facing “enormous” challenges and that the plan represented “a shared path toward the necessary transformation.”
Volkswagen, which has around 650,000 employees, reported a 30% drop in after-tax earnings for the first half of the year as sales took a hit in China. In addition to the core Volkswagen brand, its other nameplates include Audi, Skoda, Porsche and SEAT.