While hailed as a Christmas miracle by union leaders, the agreement forces significant concessions from the workforce, including a wage freeze until 2027, reduced bonuses, and the “socially responsible” elimination of over 35,000 jobs by 2030, primarily through early retirement and attrition.
These painful sacrifices show the depth of the crisis facing Volkswagen, a crisis self-inflicted due to a series of management blunders.
“We have succeeded in finding a solution for employees at Volkswagen sites that secures jobs, safeguards products in the plants, and at the same time enables important future investments,” declared IG Metall negotiator Thorsten Gröger.
“No site will be closed, no one will be laid off for operational reasons, and our company wage agreement will be secured for the long term.”
VW’s failings laid bare
The need for such drastic measures exposes Volkswagen’s precarious position in the global automotive market.
The company, once a dominant force, has been slow to adapt to the rapidly changing landscape, particularly the shift towards electric vehicles (EVs).
VW’s delayed and underwhelming EV strategy has allowed competitors, particularly Chinese manufacturers like BYD and Geely, to gain a significant foothold, eroding VW’s market share both domestically and internationally.
VW has experienced sluggish demand in Europe as well with its network of German plants operating below capacity, leading to inefficiencies and increased costs.
The agreement will see capacity cut by 700,000 vehicles.
internal issues
Compared to its competitors, particularly those in Asia, VW faces significantly higher labour costs in Germany, impacting its competitiveness.
Previous attempts by former VW CEOs Herbert Diess and Bernd Pischetsrieder to implement far-reaching changes were also thwarted, delaying necessary restructuring.
These factors, coupled with supply chain disruptions and intense competition, have created a perfect storm for Volkswagen, forcing the company to seek drastic cost-cutting measures.
Unions stand firm
Despite the concessions, the trade unions’ steadfast resolve during the marathon negotiations prevented even more devastating outcomes.
The union successfully resisted VW’s initial demands for immediate plant closures and a 10% wage cut with the threat of further strikes, following two successful walkouts involving over 100,000 workers in the past month, proved a powerful bargaining chip.
“With the package of measures that has been agreed, the company has set a decisive course for its future in terms of costs, capacities, and structures,” said Volkswagen Group CEO Oliver Blume.
“We are now back in a position to successfully shape our own destiny.”
Future is not promised
While the agreement provides a temporary reprieve for VW workers, the future remains uncertain.
The deal struck buys Volkswagen time, but it also highlights the urgent need for a fundamental shift in strategy and a renewed focus on innovation.
Success or failure will not only impact its workforce but also the broader, manufacturing-dependent German economy.
Shares in Volkswagen rose 2.4% after the deal was struck, but are still down 23% this year, a sign that investors are not fully convinced the deal is enough.
