Volkswagen to cut thousands of jobs

Germany's renowned automotive giant, Volkswagen, is bracing its workforce for an impending wave of job cuts, grappling with the prevailing high costs and low productivity that afflict the nation's economy. As part of a comprehensive program aimed at slashing expenditures by €10 billion (£9 billion) over three years, the automaker is reportedly considering plans for significant job reductions, although no specific target has been firmly set.

The challenges for Volkswagen include confronting lower demand for its electric vehicles (EVs), which inherently carry a higher upfront cost compared to traditional combustion alternatives. In a Monday briefing, managers disclosed the impending plans for job reductions to Volkswagen staff.

While concrete details are yet to emerge, potential avenues for workforce reduction may include early retirements, leveraging Volkswagen's relatively substantial number of older employees approaching retirement age. Speculations suggest that departments such as the design function could be candidates for cuts, especially after outsourcing the design of the Scout SUV to Magna Steyr, a supplier.

Analyst Daniel Roeska from Bernstein suggests that, in the long term, production line positions may face cuts as EV manufacturing typically involves assembling fewer parts. However, Volkswagen might consider a strategy similar to Mercedes, bringing more supplier production in-house to mitigate the need for redundancies.

Germany's economic challenges further compound Volkswagen's struggles, with the country's economy contracting by 0.1% in the three months to the end of September. Factors such as high energy prices, elevated borrowing costs, and weak consumer demand contribute to this economic downturn. Factory output, particularly in the automotive sector, has suffered, reaching a three-year low in September, primarily impacted by sluggish car production.

The automotive industry's woes extend to Germany's carmakers, experiencing diminished demand, particularly for electric vehicles. Buyers' incomes are strained by rising bills fueled by surging energy prices and higher interest rates imposed by central banks to combat inflation.

Porsche, a luxury carmaker part-owned by Volkswagen, reported a 12% revenue drop in China, a critical market for luxury car manufacturers. Mercedes has also issued warnings, highlighting the challenging market for electric carmakers as competitors slash prices, and affluent customers tighten their spending.

Volkswagen, responding to the situation, emphasized an ambitious performance program and involvement of employee representatives in its development. The company intends to critically analyze all costs and areas, leveraging personnel development along the demographic curve. While there is no specific total target for reducing the workforce, Volkswagen remains committed to navigating these challenges and optimizing its potential for sustainable growth.