The German engine crisis results in a historic decision. Volkswagen, the largest producer in the world and the great German leader, has announced that it is upping the ante and will close at least three factories to reduce costs and increase its profitability in a really complicated context. This will not be the only decision along these lines. The company has reported that it will also reduce costs in the other seven plants in the country with a 10% reduction in the salaries of its staff. This was expressed by Daniela Cavallo, head of the works council and member of the supervisory board in a speech at the nerve center of the motor titan, Wolfsburg.
“Management takes this decision very seriously. This is not a collective bargaining agreement where we are creating noise,” Cavallo said. Although this is a “closed plan” for “adjust the structure of Germany’s largest industrial group in their country” of origin. For now, the company’s management has refused to assess what impact these closures will have on the workforce. “We are not very far when it comes to the analysis of the problems, but we are very far when it comes to the responses to them,” stated the board. Representatives of the company are scheduled to meet this Wednesday. with the unions to begin negotiations.
Volkswagen had already announced at the beginning of September the historic decision to close a plant on German soil in the first decision of this type in 87 years of history. Despite all this, it remained a simple plan that had not landed. Now the official announcement is much harsher than it initially seemed because it will not be a single plant but rather it will be a large-scale cutback. The country has a dozen plants in the country that support the jobs of nearly 300,000 employees, Therefore this decision can have a great impact on workers.
Volkswagen’s crisis comes after intense competition from Chinese models that has been mixed with a drop in demand. This combination of factors, mixed with the higher costs and the road towards the transition to electric carsthis results in a true moment of high tension for the entire industry. These structural problems have been mixed with technical problems in other companies such as Mercedes or BMW, generating double-digit falls in the stock market in many of these values between the current problems and the crisis in their business model.
It has also mixed with a wounded German economy, especially in its industrial sector. The Bundesbank announced this month that it now expects a recession by 2024, thus generating two consecutive years of economic contraction, of 0.2% for this year and 0.3% in 2023. “The German economy is increasingly affected by structural factors derived from demographic change, a more difficult competitive position and geoeconomic fragmentation.
In particular, Volkswagen lowered its forecasts for the entire year at the end of September, stating that revenues would be around 320 billion and the operating result at 18,000 million. The group openly argued that this was because in “a challenging market environment, sales have not met expectations.” After hearing the news, the firm’s shares fell 0.2% (despite the fact that they started the day clearly rising) and have already fallen by 18% for the year.
In any case, this latest news does not even surprise the markets. Volkswagen has been preparing the ground for a drastic option for some time. The firm spoke at its general meeting that it expected layoffs soon. In his speech, Arno Antlizfinancial director of Volkswagen, has indicated that the firm has “one or two years to change things“. The manager who was booed by nearly 20,000 employees present at the meeting already warned of the problem. The German giant has two extra factories and “we need to increase productivity and reduce costs.” The decision has been more drastic than the predictions. of that meeting, which took place in the first days of September.
Although there are still no figures or anything close to them, Jefferies announced that they expected provisions of 4,000 million euros for layoffs by the company. Summing up, This would imply the dismissal of 15,000 workers. These figures occurred when it was thought that between one and two factories would be cut. The idea of removing three floors can increase this number even more. Volkswagen had signed an agreement in 1995 by which it could not lay off until 2029. The company would have already begun to withdraw this self-imposed restriction.
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