Carmaker cutting half their models and facing pressure from Chinese electric vehicle competition
Jack Ewing, Theresa Rauffmann And Jim Tankersley
Updated ,first published
Volkswagen announced that it will reduce the number of models it offers by half in order to reduce costs and better compete with Chinese companies. But the German automaker did not say what these changes would mean for workers who are preparing for major layoffs and factory closures.
The plan, announced after the board meeting, appeared to be a tacit acknowledgment that the company had become too large and complex and needed to slim down to survive the global transition from fossil fuel cars to electric vehicles; This transition disrupted many established automakers and enabled the rise of Chinese automakers.
“Geopolitical tensions, rising costs (mainly resulting from tariffs), increasing regulatory requirements and an increasingly intense global competitive environment have further increased the challenges facing the automotive industry in what is already a phase of far-reaching transformation,” Volkswagen said in a statement.
Reports in the German media in recent days have suggested that the company is preparing to lay off 100,000 workers and close four factories in Europe by the end of this decade.
Such drastic cuts would be unusual for Volkswagen and the German industry, which tends to favor gradual changes. Labor representatives and political leaders from the German state of Lower Saxony have a majority on the company’s 20-person supervisory board and have signaled they do not support deep cuts.
In Neckarsulm in southwestern Germany, where 15,000 workers assemble models for Volkswagen’s Audi luxury brand, residents fear the plant’s closure would devastate a local economy built on the rhythm of factory shifts.
“If Audi dies, everything here dies,” said 54-year-old Çaylı Halin, who works in the factory’s test center.
Thursday’s announcement left it unclear how many of Volkswagen’s 657,000 employees worldwide might lose their jobs as it cuts production. The company’s profits fell 28 percent to 1.6 billion euros ($2.64 billion) in the first quarter, and its sales fell 2 percent.
Volkswagen’s Porsche unit, which usually generates the bulk of profits, has been hurt by US President Donald Trump’s 25 percent tariffs on imported cars. Porsche sports cars and sport utility vehicles are manufactured in Germany and exported to the United States, one of the brand’s most important markets.
Volkswagen’s problems are an ominous sign for established Western and Japanese automakers. To varying degrees, all are grappling with changing technology and competition from Chinese manufacturers like BYD and Geely, which sell luxury feature-packed cars at relatively low prices.
In the European Union and Britain, Chinese automakers sold more vehicles than Japanese automakers in May, according to data from the Association of European Automobile Manufacturers.
Encouraged by government subsidies, Chinese automakers began focusing on electric vehicles years ago; these investments gave them a strong advantage, with more Europeans purchasing such models. One in every five new vehicles sold in Europe is electric, and there has been an increase in sales this year due to the increase in fuel prices due to the war with Iran.
Volkswagen is particularly vulnerable because for many years the bulk of its profits came from car sales in China, where it was once the largest automaker. The company’s sales in China fell 20 percent in the first quarter after falling significantly for several years.
Fears of factory closures have shaken Germany, where the auto industry, and Volkswagen in particular, occupies sacred spaces in the national consciousness and is a pillar of the national economy.
Chancellor Friedrich Merz and his government have tried to stimulate the industry by pushing EU officials in Brussels to relax automotive regulations and with new subsidies, among other steps, in the hope of helping German automakers better compete with their Chinese rivals.
Merz did not address rumors of layoffs at Volkswagen ahead of Thursday’s board meeting, but spokesman Stefan Kornelius told reporters last week, “Our goal is to prevent the closure of factories in Germany.”
Ali Alp Çağan, 31, has been working as an information technology specialist at Audi for about two years and is not personally worried about being laid off because he thinks his job prospects are strong.
“But overall the situation is already tense,” he said.
Cagan and other workers, who recently left the factory due to a shift change, blamed the company for failing to innovate and that China now produces cheaper and better cars.
This article was first published on: New York Times.
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