Volkswagen announces pay cuts as profits fall

Volkswagen has asked its German workforce to take a 10 per cent pay cut as the car giant grapples with rising costs, falling demand and increasing competition from China.

Overnight, Volkswagen announced the first public round of its collective bargaining consultation with its works council, which included the proposed pay cuts.

“Successful operations are a prerequisite for job security. And that is our goal,” Volkswagen’s head negotiator Arne Meiswinkel said.

“So one of the things we need to do is reduce our labour costs. A decisive tool here will be lowering labour costs to a competitive level relative to the industry benchmark.

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“Even if Volkswagen were to cut pay levels, these would still be very attractive compared with the industry as a whole.

“We, the parties to the collective bargaining agreement, need to share the responsibility and take consistent action to safeguard our future success.

“In a difficult situation like the present, we must all pull together. This is something that has always set Volkswagen apart, and will continue to do so going forward.”

While the announcement centred on finances for employees, there was no mention of the reported possibility of the carmaker closing three of its German factories, as was claimed by works council head Daniela Cavello earlier this week.

However, Mr Meiswinkel hinted changes could be on the cards, claiming German brands in particular are at greater risk to threats from overseas rivals.

“We are very concerned about the current trend in the auto industry in Europe, and especially in Germany as a business location,” Mr Meiswinkel said.

“The deterioration in Volkswagen’s figures for the last quarter underline, particularly for the Volkswagen brand with a margin of only 2.1 percent, makes this particularly clear. If we remain at this level, we will be unable to finance our future.”

Volkswagen negotiation representatives and the works council are next due to meet on November 21.

The pay cut announcement is the first official proposal made by Volkswagen to save costs after recent reports it was looking to make changes.

The carmaker announced its third-quarter financial results overnight, with its year-to-date operating result down by 21 per cent compared to the first nine months of 2023 – standing at €12.9 billion ($21.3 billion) to the end of September.

Its after-tax earnings were down 30.7 per cent on the first nine months of 2023, and were down 63.7 per cent comparing the third quarter of this year with the third quarter of 2023.

While its sales in North America were up by four per cent and in South America by 16 per cent compared to the first nine months of 2023, European sales were down one per cent and Chinese sales slumped 12 per cent.

Last month, Reuters reported the Volkswagen Group is targeting savings of €10 billion (A$16.3 billion) by 2026. At the time, the carmaker’s works council said at least one vehicle plant and component factory were considered “obsolete”.

Volkswagen finance chief Arno Antlitz later attended a gathering of 25,000 workers at the company’s Wolfsburg headquarters, and said they needed to work with management to cut spending.

Volkswagen brand CEO Thomas Schäfer reportedly said the company’s German factories were operating at 25 to 50 per cent above targeted costs, driving part of the company’s desire to cut expenditure.

Previous claims by analysts have said Volkswagen’s Osnabrück and Dresden factories are two of the most likely plants to be closed.

Volkswagen Group Australia, which does not plan to transition to electric vehicles (EVs) as soon as its European parent, told CarExpert earlier this month the overseas cost-cutting is unlikely to affect its local operations.

“Our situation in Australia is unique in so many respects, not least of which is the fact our relationship with EVs is maturing,” said Volkswagen Group Australia corporate communications general manager Paul Pottinger.

“It’s not fully fledged or consummated as it is in Europe – we’re a completely different state.”

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