Volkswagen enacts 10% pay cuts, mass layoffs and factory closures — German auto industry braces for impact

Volkswagen is preparing for a harsher-than-expected restructuring plan that could see tens of thousands of German workers laid off, marking one of the biggest cost-cutting moves in its recent history, the company's works council head said on Monday.

The announcement comes as part of a strategy to help VW cut costs amid rising energy and labor expenses and increasing pressure from China’s EV industry. 

The company is planning to lower its expenses through a combination of factory closures, pay cuts, and worker layoffs. The scale of these cuts is raising concerns among the company’s employees and the union that represents them.

Wage reductions and freezes spark worker outrage
In addition to the layoffs, Volkswagen plans to cut salaries across the board by at least 10%, with a pay freeze scheduled for both 2025 and 2026. The decision has not only hit morale but has also drawn fierce opposition from the company’s workforce.

Thousands of VW employees recently gathered at the Wolfsburg headquarters to protest. "I believe that anyone who hasn't yet understood what it's all about should now really wake up," said Stefan Erhardt, an employee at one of Volkswagen’s German plants. "This is really about all our livelihoods for the future, about the suppliers. This is about every small baker here at this location. I have to say, I'm really a bit scared."

The pay cuts are intended to help the company reduce costs in a challenging market, but they may also incite a strike from the worker’s union. A negotiator for the union said that if the company confirms its plans to go down the “dystopian path” it has laid out, they should “expect the corresponding consequences on our part.”

Factory closures and economic pressures compound
Adding to the tension, Volkswagen is preparing to shut down at least three of its German plants, though specific locations have not been confirmed. If Volkswagen follows through with its plan, it would be the first time that the company has closed a factory in Germany.

Volkswagen’s restructuring plans also point to larger issues within Germany’s economy, which faces a second consecutive year of contraction. High energy costs, weakening demand in Europe and China, and slower-than-expected EV adoption have placed significant pressure on the auto industry — Germany’s economic backbone.

The German government, under Chancellor Olaf Scholz, is now under pressure to provide solutions that support growth and safeguard jobs, especially with federal elections on the horizon.

Final Thoughts
Volkswagen’s cost-cutting plan is a stark indicator of the challenges facing Germany’s automotive industry as it contends with global competition and rising operational costs.

As workers brace for layoffs, pay cuts, and potential plant closures, VW’s management faces an uphill battle to balance the company’s financial health with the well-being of its workforce. How Volkswagen handles these restructuring efforts will likely have lasting implications for its reputation and future in Germany.