Volkswagen, Europe’s largest automaker, reached a groundbreaking agreement with labour unions on Friday to implement sweeping changes across its German operations, including the reduction of more than 35,000 jobs and significant capacity cuts. The deal, struck after 70 hours of intense negotiations, successfully averted the threat of widespread industrial action.
The agreement, described by union representatives as a “Christmas miracle”, represents the longest negotiation period in the company’s 87-year history. The deal ensures there will be no immediate site closures or compulsory redundancies, with Volkswagen appearing to retreat from earlier demands for 10% wage cuts.
The announcement provided relief to investors, with Volkswagen shares rising 2.4% in extended trading, despite having lost 23% of their value throughout the year. The negotiations, which began in September, were initiated by Volkswagen as a response to mounting competition from Chinese manufacturers, dampened European demand, and slower-than-anticipated adoption of electric vehicles.
The scale of the changes became apparent after approximately 100,000 workers participated in two separate strikes over the past month, marking the largest industrial action in Volkswagen’s history. Volkswagen Group CEO Oliver Blume emphasised the significance of the agreement, stating it would enable the company to “successfully shape its own destiny”.
The restructuring plan aims to achieve annual savings of 15 billion euros in the medium term, with the company stating it does not expect significant impact on its 2024 guidance. Whilst immediate factory closures were avoided, the company announced it is exploring options for its Dresden plant, which will cease vehicle production by the end of 2025, and considering the future of its Osnabrueck site, including potential sale. Some production will be transferred to Mexico.
The agreement includes significant changes to working conditions, with VW AG staff foregoing raises under collective wage agreements for the next four years, alongside the reduction or elimination of certain bonuses. The company’s primary facility in Wolfsburg will see its assembly lines reduced from four to two.
Works council chief Daniela Cavallo highlighted the agreement’s protective measures, confirming that no sites would face immediate closure and no operational redundancies would occur, whilst maintaining the company’s wage agreement for the long term.
The negotiations, which took place in a modest business hotel on the outskirts of Hanover, saw delegates working through the night, sustained by coffee, curried sausage, and fruit. The 35,000 job reductions, representing approximately a quarter of VW’s workforce, will be implemented alongside a reduction of more than 700,000 vehicles from the company’s German production network.
European auto markets analyst Matthias Schmidt suggested the agreed job cuts, planned to occur along demographic lines until 2030, might be insufficient and too gradual to address current market stagnation. He noted that whilst unions appeared to have secured a favourable deal, the company’s complex structure likely limited more dramatic changes.
The restructuring comes at a politically sensitive time in Germany, with Chancellor Olaf Scholz, who welcomed the agreement as a “good, socially acceptable solution”, facing a snap election in February. The deal’s significance is amplified by the fact that previous Volkswagen executives, including Herbert Diess and Bernd Pischetsrieder, failed to implement similar large-scale changes due to union resistance.
Financial analysts estimate the threat of strikes significantly influenced negotiations, with UBS calculating that each day of industrial action could have cost Volkswagen up to 100 million euros in revenue and approximately 20 million in operating profit, based on reduced production of 2,000-3,000 vehicles per day.