FRANKFURT, Germany (AP) — Germany’s Volkswagen says headwinds in the auto industry mean it cannot rule out plant closures at home and is ditching a long-standing job-protection pledge in place since 1994 that would have banned layoffs until 2029.
“The European automotive industry is in a very demanding and serious situation,” Volkswagen Group CEO Oliver Blume said in a statement on Monday.
He cited new competitors entering European markets, Germany’s deteriorating position as a production location and the need to “take decisive action.”
Thomas Schaefer, CEO of Volkswagen’s Passenger Cars division, said efforts to reduce costs were “yielding results,” but that “headwinds have become significantly stronger.”
European carmakers are facing increasing competition from cheap Chinese electric cars, with the company’s half-year results indicating it will miss its target of €10 billion in cost savings by 2026, the company said.
The discussion about closures and layoffs is for the company’s core Volkswagen brand, which saw operating profit fall to 966 million euros ($1.1 billion) from 1.64 billion euros in the same period a year earlier.
The group also includes luxury brands Audi and Porsche, which have higher profit margins than Volkswagen’s mass-market vehicles, as well as SEAT and Skoda.
The company has tried to cut costs through early retirements and buyouts that avoid layoffs, but now says those measures may not be enough. Volkswagen has about 120,000 employees in Germany.
According to news agency dpa, it would be the first time a factory has closed since the American factory in Westmoreland, Pennsylvania closed in 1988.
Union officials and employee representatives attacked the idea of closures or layoffs. The management’s approach is “not only short-sighted, but also dangerous, because it threatens to destroy the heart of Volkswagen,” Thorsten Groeger, VW’s chief negotiator for the industrial union IG Metall, said on the union’s website.
Top worker representative Daniela Cavallo said “management has failed… The result is an attack on our workers, our sites and our labor contracts. We will not close any factories.”
The governor of the German state of Lower Saxony, Stephan Weil, who sits on the company’s board of directors, agreed that the company needed to take action, but called on Volkswagen to avoid factory closures by relying on alternative ways to reduce costs: “The state government will pay particularly close attention to this,” he said in a statement reported by the dpa news agency.
