VW defends possible German factory closures, says weak sales leave two plants empty

Volkswagen Group's top management defended plans to consider unprecedented factory closures in Germany, saying flagging car sales have left the company with about two plants too many.

Demand in Europe has not recovered since the pandemic, with industrywide auto deliveries in the region around 2 million short of its peak, Chief Financial Officer Arno Antlitz said at an employee assembly at the automaker's headquarters in Wolfsburg.

Workers heckled Antlitz and VW Group CEO Oliver Blume when they took the stage.

VW has lost sales of some "500,000 cars, the equivalent of around two plants," Antlitz said. "We need to increase productivity and reduce costs," he told employees.

Anlitz's speech was delayed for several minutes as staff whistled and shouted "Auf Wiedersehen" -- German for 'goodbye.'

Antlitz said he did not expect sales to recover and that the VW brand must cut spending and adjust its output to survive the shift to electric cars.

He said staff and management must work together to make the brand competitive again and ensure it can offer quality cars at affordable prices. "We still have a year, maybe two years, to turn things around," Antlitz said. "But we have to make use of this time."

At least 16,000 workers joined the meeting on Sept. 4 in and around the cavernous halls of VW's main factory in Wolfsburg, according to a spokesperson for the company's works council.

VW this week said it's weighing whether to shutter sites in Germany for the first time and end job security agreements after years of ignoring overcapacity and slumping competitiveness. The move sets up a showdown with powerful unions as the country's most important industry fights for its future.

VW's main target is its underperforming namesake passenger car brand, whose profit margins are getting squeezed amid a sputtering transition to EVs and a consumer spending slowdown. Carmakers in Europe are also struggling to compete with Tesla and new entrants from China.

Daniela Cavallo, VW's top employee representative and a supervisory board member, said at the meeting that she will fight any factory closures, adding that workers should not have to suffer for management blunders including VW's poor performance in the U.S.

While the VW brand still needs to realize €3 billion ($3.3 billion) in cost savings to achieve a €10 billion efficiency program agreed on last year, labor expenses account for only a fraction of that gap, she said.

"Volkswagen isn't ailing because of its German sites and German personnel costs," Cavallo said. "Volkswagen's problem is that the board of management is not doing its job."

Europe is in the center of a global slowdown in the EV transition after a range of countries including Germany and Sweden reduced or removed incentives. With car sales still nearly a fifth lower than pre-pandemic levels, manufacturers including VW, Stellantis and Renault are operating factories at levels analysts consider unprofitable, according to data from Just Auto.

Cavallo urged CEO Oliver Blume, who was not scheduled to give a speech, to address staff and explain why the group was prioritizing spending on a 5-billion-euro software partnership with U.S. start-up Rivian over protecting German jobs.

VW Group, which includes the Audi, Porsche, Skoda, Seat ad Bentley brands, last year built 9 million vehicles, compared with total capacity of 14 million.

Raising returns at the main VW brand has become tougher with higher logistics, energy and labor costs. The brand's margin fell to 2.3 percent during the first half, compared to 3.8 percent a year ago.

Blume's decision to challenge the unions is a departure from his image as a team player who keeps labor on side.

'Damocles Sword'

Some investors and analysts speculated that the threat of plant closures could be a negotiating tactic to get rid of job guarantees and drive down wage demands.

Blume "definitely won't manage to get rid of job guarantees, cancel wage increases and close plants. But we can't rule out that he will manage one or two of those goals," said Moritz Kronenberger, portfolio manager at VW shareholder Union Investment.

Still, union representative Thomas Knabel said there would be no talks unless VW took plant closures off the table. "I cannot imagine negotiations that would work under the Damocles Sword of plant closures," he said.

While management blamed financial pressures on a worsening German economy and new competitors, unions said the carmaker's production strategy is inefficient and decision-makers had been too slow in investing to produce a mass-market electric vehicle.

Whatever the cause, the company must make quick decisions about where to cut costs, investors and analysts said -- a challenge for a group of its size and with a complex power structure formed over its 87-year history.

"In difficult times, management and unions have an ability to get to consensus," Jefferies analyst Philippe Houchois said. "But it's not going to be smooth."

Reuters contributed to this report