Volkswagen and Labor Leaders Ink Agreement on Cost Reduction & Job Cuts

After enduring months of intense discussions, Volkswagen AG and its influential labor chiefs have reached a preliminary understanding. The agreement centers around a cost reduction plan of €10 billion ($11 billion), designed to escalate the relatively lackluster earnings of Volkswagen’s flagship brand.

Volkswagen detailed the strategy on Tuesday, which primarily aims to slash workforce expenses by nearly 20%. The administrative units are likely to face the brunt of the cuts, as the company foresees significant scope for reductions in this area. Adding to this, Volkswagen is also proposing an early retirement scheme, enabling employees to consider winding down their careers at the age of 57. This move is expected to contribute significantly to the overall cost savings objective.

However, the ultimate goal of this extensive plan is to elevate the returns for the VW brand considerably. The company’s aspiration is to more than double the returns to 6.5% by 2026. This ambitious target stands as a testament to the vehicle giant’s determination to match up with its competitors, such as Stellantis NV.

The primary vehicle of Volkswagen’s cost-cutting efforts will be the “performance programmes.” The Volkswagen brand, which is responsible for the majority of the carmaker’s unit sales, is the first to kick-start this initiative. This is a strategic effort aimed at strengthening the carmaker’s financial stability and enhancing its credibility in the eyes of investors.

A confidential memo issued to staff earlier this month revealed that Volkswagen plans to reduce administrative staff costs by a fifth at its eponymous brand. Coupled with a reduction in product development cycles from 50 months to just three years and a cut in production times, these measures are projected to save a billion euros by 2028. Furthermore, Volkswagen will ditch its plan for a new €800-million R&D site in its home city, Wolfsburg.

Additional measures revealed in Volkswagen’s Tuesday statement include encouraging partial retirement for workers born in 1967, or 1968 for those with severe disabilities. This strategy is primarily aimed at lowering costs in the administrative personnel sector.

Beyond these personnel measures, Volkswagen also plans to save €320 million annually by enhancing its purchasing performance. It also expects to generate over €250 million annually by optimizing its after-sales business and save over €200 million a year by refining production times.

Furthermore, the company aims to save an additional €400 million every year by halving the number of test vehicles used in technical development, with a pivot toward digital processes for testing.