Volkswagen Reaches Agreement with Labor Union on Capacity Reduction, Avoiding Factory Closures

Volkswagen AG has reached an agreement with labor leaders to reduce production capacity at its main brand while avoiding the closure of any factories during this process. This agreement, reached after three months of intense negotiations, also helps to prevent additional union strikes.

As part of the agreement, Volkswagen committed to maintaining operations at all 10 of its plants in Germany and reinstating job security agreements until 2030. This information was disclosed by the works council on Friday. In return, workers agreed to forgo certain bonuses, reduce the number of continually employed apprentices, and cut production by several hundred thousand units at five locations.

These measures were determined after five rounds of discussions and are significantly less severe than the large cost-saving plans initially proposed by Volkswagen. Labor leaders had strongly opposed the company's original plans to lay off thousands of workers, reduce monthly wages, and close three factories in Germany in order to enhance the competitiveness of the Volkswagen brand.

However, management was able to convince labor leaders to shift the production of the Golf hatchback model from the Wolfsburg factory in Germany to Mexico, as well as to reduce the capacity of the electric vehicle plant in Zwickau.

This agreement presents a new opportunity for CEO Oliver Blume to revitalize Europe’s largest car manufacturer, which is facing declining market share in China and slowing demand for electric vehicles in Europe and the United States.