By Victoria Waldersee and Christoph Steitz
BERLIN/FRANKFURT (Reuters) – As Volkswagen and unions prepare for the next round of talks on wages and factory closures in Germany, company and industry data reviewed by Reuters show the carmaker is spending a higher share of sales on labor costs than its big rivals.
The data, in an internal memo from Volkswagen’s works council reviewed by Reuters, underlines the company’s challenge to stay competitive in its expensive home market as cheaper models arrive from China.
Management will begin the next round of negotiations with unions representing about 120,000 German workers on Thursday. Unions are demanding a 7% pay increase, while Volkswagen is threatening a 10% pay cut.
The share of global sales spent on labor at Volkswagen has fallen from 18.2% in 2020 to 15.4% in 2023 – but that ratio is still higher than that of BMW, Mercedes-Benz and Stellantis, which according to figures, will spend between 9.5% and 11% in 2023. the works council memorandum.
At VW AG, the German subsidiary that controls the six factories in question, the ratio was estimated at 15.8-17.5%. Volkswagen says it will not release separate figures for VW AG.
The findings of the works council, an elected body of employees that represents them in negotiations with management, are based on annual reports that compare companies’ global employee spending with sales. The figures include all staff, from factory workers to white-collar workers. Reuters checked and confirmed the calculations.
Part of the reason the company spends more on labor is that it makes many components and software in-house, says Stifel analyst Daniel Schwarz. But the pressure on margins from China means that the company has to cut back on fixed costs.
“The VW brand has been the market leader in Europe every year since 2005… its cars are competitive. The problem is not the product, but the cost,” he told Reuters.
Germany, where Volkswagen employs almost 45% of its workforce, has the highest labor costs of any passenger car industry worldwide, reaching an average of 62 euros per hour in 2023, about a third more than a decade ago, the German Automobile Association said. VDA.
Still, union representatives say labor makes up only a small part of the company’s cost base, challenging management to make cuts elsewhere to boost declining profits.
In an internal flyer to staff, the works council pointed to sharp declines in profits at other parts of the group – Porsche, Audi and VW Financial Services – in the first nine months of the year, which it said cost the company 5.5 billion euros. ($5.8 billion).
“That alone is an argument why it is not enough to put labor costs at the center of communication,” the report writes.
VW AG’s factories are the only car factories in Germany, apart from Tesla’s, where wages are determined not by an industry-wide collective agreement for the automotive and machinery sectors, but by a separate agreement.
Volkswagen canceled that agreement in September to cut back on the VW brand, which it says is crucial to its survival.
Big pay cuts would be a bitter pill for German unions after they negotiated a 5.5% increase in the industry-wide deal this month, and Tesla increased wages for German staff by 4%.
TWICE THE PRICE
Volkswagen says that even after the planned cuts, salaries would be very attractive.
The problems come amid broader concerns in Germany about competitiveness, as politicians prepare for an election battle in February over how to revive a weakening industrial base.
“We are not productive enough at our German locations,” VW brand chief Thomas Schaefer said last month, pointing to rising costs for energy, materials and personnel.
“Our factory costs are currently 25-50% higher than we planned. This means that individual German factories are twice as expensive as those of the competition.”
In France, Italy and Spain – where Volkswagen rivals Stellantis and Renault have most of their European factories – car industry workers earn 47 euros, 33 euros and 29 euros per hour respectively, VDA data shows.
VW AG’s costs are particularly high because it includes staff that perform administrative functions for the entire Volkswagen Group, such as sales, management and technical development, and often demands higher salaries.
Volkswagen has announced tens of thousands of job cuts in Germany in recent years, including a pact with unions brokered by former CEO Herbert Diess to cut 23,000 jobs at the VW brand by 2025.
But the transition to electric, software-controlled cars and stricter regulations have also meant that many employees have been hired in areas such as software and administration.
The number of employees at VW AG is reaching a comparable level to that of blue-collar workers, a source with knowledge of the matter said.
An internal document seen by Reuters showed that while the number of factory workers at VW AG fell by more than 8,000 between June 2019 and September 2024, the number of administrative staff rose by about 4,000.
Volkswagen declined to comment on the figures.
($1 = 0.9451 euros)
(Reporting by Victoria Waldersee in Berlin and Christoph Steitz in Frankfurt. Editing by Josephine Mason and Mark Potter)
