Volkswagen to cut capacity, model lineup as it tries to tackle a historic crisis
Volkswagen Faces Unprecedented Restructuring Amid Economic and Competitive Pressures
By Rachel More and Christina Amann
WOLFSBURG, Germany, July 9 (Reuters) - Volkswagen plans to drastically cut its model lineup and further pare back capacity, as Europe's largest automaker considers a far-reaching overhaul that sources say could cost around 100,000 jobs.
Volkswagen is under unprecedented pressure to restructure the business model that underpinned its success for decades, as it grapples with high costs and excess capacity at home. Those factors, along with rising Chinese competition, regulation, and U.S. import tariffs, have sliced its profit margins in half between 2021 and 2025.
Planned Cuts and Strategic Shifts
The company said on Thursday following a supervisory board meeting that its lineup would be gradually cut by up to half, as it concentrates on the most attractive market segments. Production capacity will be reduced to nine million vehicles per year, down from 10 million currently.
"The global situation has continued to deteriorate over the past twelve months," Volkswagen CEO Oliver Blume said. "That is why we are acting now."
Potential Plant Closures and Job Reductions
Sources have said Blume is considering closing four German plants — Hanover, Emden, Zwickau and Audi's Neckarsulm site — and cutting up to 100,000 jobs, roughly double the number currently planned, in what would be Volkswagen's biggest restructuring yet.
Volkswagen did not provide specifics on what sources have said about potential job cuts and factory closures, which drew massive worker protests across company sites on Thursday.
The prospect of plant closures and deep job cuts at one of Germany's most storied companies, founded 89 years ago, exemplifies the challenges Europe's largest economy faces as it struggles with weak growth and high labour and energy costs.
Reducing Offering Complexity
So-called offering complexity, including the number of equipment options, will be cut by up to 75%.
Labor Reactions and Uncertainty
Worker Protests and Union Response
At the board meeting at Volkswagen's headquarters in Wolfsburg on Thursday, Blume faced the committee's powerful labour representatives, who oppose deeper cuts across the group, which includes the Audi and Porsche brands.
He is also under pressure from the Porsche and Piech owner families, whose core investments have lost tens of billions of euros in market value in recent years. Volkswagen shares have lost more than half their value in the last three years.
In Wolfsburg, workers blew whistles, waved red union flags and marched behind a banner reading "gemeinsam stark" — "strong together" — as a klaxon sounded in the background.
The IG Metall union said around 400 people were demonstrating in Wolfsburg, with union representative Thorsten Groeger warning the company risked a "major conflict" with workers.
Daniela Cavallo, the head of the company's works council, which represents employees, said staff were not to blame for the sector's crisis, and "great fear and deep uncertainty" were spreading across company factories and offices.
Calls for Clarity on Job Cuts
Volkswagen's works council called on Blume to address speculation around job cuts and plant closures by a Friday deadline, warning of further extraordinary staff meetings in the months ahead if he did not.
"Not a word about production, not a word about employment," said German automotive industry analyst Ferdinand Dudenhoeffer. "One could also say that uncertainty remains – which is not good for customers, employees and investors."
Volkswagen faced mass strikes in December 2024, but there is currently an agreement for workers not to take industrial action while existing work contracts are in force.
The company's supervisory board includes representatives of the owner families, unions and the Lower Saxony state government, a power-sharing structure that often complicates decision-making.
Future of German Car Plants
Expected Output Reductions
Under Blume's last restructuring deal, unions secured a commitment from management to avoid German plant closures, prompting Volkswagen to seek alternative uses for underutilised sites.
Those efforts include a long-running search for a defence-sector partner for the Osnabrueck factory and the possibility of producing models designed for the Chinese market in Germany.
Mobility Global data seen by Reuters estimates the group's German car plants will operate at 81% of standard capacity in 2026. That figure is expected to fall to 73% by the end of the decade, even after the anticipated removal of Osnabrueck from the network.
Utilisation Rates and Site Closures
Among the four sites threatened with closure, Zwickau is forecast to have the highest utilisation rate in 2026 at 88%, which is expected to fall to 42% by 2030, the data showed.
Political Implications
Conservative Chancellor Friedrich Merz, currently trailing in polls to the far-right Alternative for Germany, has promised a series of reforms to make Germany more competitive.
The AfD, which could take power in a German state for the first time in elections in September, has seized on Volkswagen's troubles as a line of attack against the government.
Reporting and Editorial Credits
(Reporting by Rachel More and Christina Amann and Alexander Hübner; Writing by Matthias Williams; Editing by Christoph Steitz, Mark Potter, Matthew Lewis and David Gaffen)
