Amid Crisis, Volkswagen And Union Workers Find Joint Exit

JAKARTA - Volkswagen Group with Toyota Group has always alternated to become the world's largest automaker. In the world's largest automotive market, namely China, Volkswagen is the best-selling brand but in recent years this group has been taken over from its own Chinese brand, especially BYD, followed by other Chinese brands such as Geely and Nio.

Just like other major conventional manufacturers, Volkswagen is considered too late to switch to electric vehicles compared to competitors, then there is Tesla and a number of Chinese brands that now control the market. This makes them lose momentum in the market while the transition to electric vehicles requires large investments in research, development, and charging infrastructure. This is a significant financial burden for the company.

In addition, increasingly strict emission regulations, especially the European Union, force car manufacturers to develop more environmentally friendly vehicles. Globally, demand for conventional cars tends to decline along with increased awareness of the importance of electric vehicles.

The increase in raw material prices, high labor wages due to the strong German trade union network, and energy costs have also increased Volkswagen's production costs. Meanwhile, to reduce costs, Volkswagen was forced to lay off and close several of its factories.

The closure of the plant, apparently provoked Chinese car officials and manufacturers to target factories that would be closed and said they were very interested in Volkswagen's location. Reuters reported last Sunday, buying factories would allow China to build influence in the German automotive industry which is home to some of the world's oldest and most prestigious car brands.

But this purchase will be difficult if brought to the political realm because the issue is quite sensitive, especially since Volkswagen has long been a symbol of German industrial power.

"In the midst of challenging market conditions, we managed to deliver a total of 9 million vehicles by 2024. On the way to a position as automotive technology leader, we have introduced more than 30 new models with various innovations including many pure electric vehicles. In the pure electric vehicle segment, Volkswagen Group has so far been the market leader in Europe. This makes us proud and at the same time motivates us to move forward. This year, we will continue to update our portfolio consistently and present 30 other new models for our customers across brands," said Volkswagen CEO Oliver Blume in a 2024 sales report. , quoted from the company's release, Thursday, January 23.

The latest news is that Volkswagen, on Wednesday, January 22, has reached a cost cut deal with its unions. This deal, instead of focusing on massive layoffs, puts forward the tradition of cooperation and compromise between management and workers.

Details of the deal were disclosed by internal company sources to Reuters. Instead of unilaterally implementing structural changes, Volkswagen actually provides a cost reduction target for each factory. Each factory will form a project team consisting of worker representatives and management. This team will be responsible for finding ways to achieve targets and increase productivity.

As part of the deal, the electric car factory in Zwickau will lose a production line. However, the plant will receive new investments in the form of used electric and conventional vehicle recycling facilities that will start operating in 2027. However, this new investment will only be provided if the cost reduction target is met.

Although tough negotiations had raised the discourse of closing three to four factories, at the final agreement, both sides agreed to end production at the Dresden facility by 2025 and the Osnabrueck plant by 2027. However, Volkswagen is committed to seeking alternative functions for both locations, including the possibility of bringing in new investors.

Analysts and investors are still questioning the effectiveness of this approach in reducing production costs compared to the permanent closure of the plant. In addition, the planned reduction of 35,000 workers is also in the spotlight.

On the other hand, to achieve Volkswagen's target, it hopes to reduce the number of workers through an early or partially retired scheme. The company guarantees that it will not lay off mass layoffs, and any employees who come out will be based on volunteerism.

Investors find this deal unsatisfactory. However, given the strong influence of trade unions and local politicians on Volkswagen's supervisory board, the deal is considered a bold move that CEO Oliver Blume has taken.