Volkswagen AG Unveils Cost-Saving Plan That May Keep German Plants Open

(Bloomberg) --Volkswagen AG laid out cost-savings proposals to workers that would shore up its financial position while potentially avoiding factory closures in Germany.

Arne Meiswinkel, the carmaker’s chief negotiator, said the measures include a 10% pay cut and revised bonus system. The moves are meant to shore up the VW brand that’s struggling with poor demand in Europe and intensifying competition in China.

VW and labor leaders warned that plant closures remain a possibility if a sufficient agreement can’t be reached.

“We’re open to any discussion to reach our financial goals,” Meiswinkel told reporters in Wolfsburg on Wednesday after talks with labor leaders. Wages at the automaker would remain “highly attractive” even after the cuts, he added.

Volkswagen shares fell as much as 1.2% shortly after the open of regular trading in Frankfurt. The stock has declined 20% this year, ranking among the worst performers on Germany’s benchmark DAX Index.

Hours before the negotiations, Volkswagen reported its least-profitable quarter in years, bolstering management’s case for pursuing drastic measures in Germany. Labor leaders earlier this week flagged plans including the 10% wage cut as well as the closing of at least three factories in Europe’s biggest economy.

Volkswagen’s latest proposals represent a “first small signal” of progress, said Daniela Cavallo, the automaker’s top labor leader. She added that shutting plants isn’t fully off the table and that workers remain “alarmed.”

Unionists have long resisted changes at the main VW brand, which has botched several electric vehicle launches and is struggling with low returns.

Slumping sales in China and increasingly stiff competition in Europe — which has yet to return to pre-pandemic demand levels — have contributed to an earnings decline at the group. The VW brand, where most of the cuts would fall, earned just a 2.1% operating margin in the first nine months of the year.

In outlining plans for the workforce, management failed to answer how much costs in Germany can really be brought down, Bernstein analysts led by Stephen Reitman said Thursday in a note to clients.

While the IG Metall union has been calling for pay hikes, Meiswinkel said reductions are needed to bolster the brand’s profitability. The company’s demands on pay need to be met to advance discussions on issues such as factories and jobs, Meiswinkel said.

“Only if we find solutions together to achieve our financial goals can we imagine concrete prospects for the German locations and possible job security,” he said.

Volkswagen’s proposals are expected to kick off more complex negotiations, with the next round scheduled for Nov. 21. A grace period runs out at the end of next month, with warning strikes possible from Dec. 1.

(Updates with analyst’s comments in ninth paragraph.)