Factory closures, model cancellations and job cuts on the cards as firm races to rebuild margins
The Volkswagen Group is facing one of the toughest battles of its recent history as it scrambles to reduce costs and stay competitive in the face of Chinese rivals, while satisfying the demands of its heavily unionised workforce in Germany.
Company boss Oliver Blume came clean to staff last week about the need to cut as many as 100,000 jobs – around one in seven of its global workforce and 50,000 more than previously communicated.
“Group headcount has been growing for decades to a level that’s no longer viable today,” Blume reportedly told staff via an interview published on the company’s intranet.
He said that VW “could not confirm a competitive workload” for its Emden, Neckarsulm, Hanover and Zwickau factories into the 2030s. All were reported earlier this summer to be slated for closure, although Blume has said he wanted “smart solutions” to keep the plants alive.
Trouble at home
The VW Group’s long-successful strategy has been to leverage Germany’s automotive skillsets to build cars locally for global export. By leaning on the brand power of VW, Porsche and Audi, the group could charge more to cover the extra cost of building there.
That model is crumbling, however, as Chinese rivals erode VW’s market share not just in China but also globally. Additional US tariffs imposed by President Trump have also eaten into that margin buffer.
European sales have stagnated, meanwhile, dropping overall German car production to 4.2 million units last year, down from stable pre-Covid figures of five-to-six million annually.
The Chinese share of the European market has grown to around 10% in the first six months of this year, according to financial analyst Morningstar. That has raised concerns that Germany’s car sector may face “a lasting reduction in scale,” Tuomas Ekholm, the firm’s head of corporate ratings for automotive, said in a note to investors.
That creates a danger. By staying concentrated in Germany, VW is caught in a vicious circle: reduced production pushes up costs back up due to the loss of scale benefits.
VW management wants to cut costs by reducing model complexity, slimming the workforce, tackling over-capacity and lowering the costs of developing and producing cars.
That, however, brings the company into conflict with the unions and the powerful VW Works Council, which represents workers up to board level. The council, led by Daniela Cavalio, is gunning for Blume over what it calls “activist short-term solutions” such as factory closures, which it says are designed to appease shareholders without respecting previous labour agreements.
Where else to build?
Germany is too expensive for VW to be competitive. A 2025 report from consultant Oliver Whyman put Germany top globally for per-car production costs at $3307 (£2470), well above the UK in second at $2333.
Moving into eastern Europe has long been the preferred solution for western European brands to cut production costs, but the German premiums are accelerating the shift.
Mercedes is doubling capacity at its Kecskemét plant in Hungary, next door to Germany, making the C-Class and GLC EVS alongside the new CLA. Building in Hungary is 70% cheaper than in Germany, Mercedes told analysts. BMW also makes the new iX3 in Hungary.
VW, meanwhile, is looking to move Golf production to Mexico, and it builds the Polo exclusively in South Africa. All of VW’s new small EVs – led by the ID Polo – are being produced in Spain, which has far lower energy costs among other benefits.
The factory dilemma
The battle now rages over production of those cars that are left in Germany, including flagship models from Porsche, Audi and VW. The plants lined up for potential closure are hardly outdated. Zwickau, for example, was converted in 2020 to build only EVs and clocked up one million of them by 2025, including the VW ID 3 and ID 5 and Cupra Born. Zwickau, which employs 9000, is touted by VW on its website as its “largest and most efficient electric vehicle plant”.
Emden is another threatened facility not long converted to manufacture EVs. VW wanted to keep production of new-tech models in Germany, but the margins for its EVs are still too thin to sustain high-cost production facilities.
Emden and Hanover, home of the ID Buzz, are situated in Lower Saxony, the state that has a 20% voting share in the VW Group, and local politicians there are expected to fight plans for any closures.
The so-called ‘Volkswagen Law’ that gave the state a major say in the company was created to protect VW from outside influence. But another kind of outside influence, in the form of global forces too strong for VW to ignore, has culminated in choices with no good outcome for Germany: either mass job losses or the further decline in the fortunes in the company that came to symbolise the country’s industrial might.
Blume’s touted “smart solutions” to save the plants-for example, reportedly shifting production of some of VW’s lower-cost Chinese models to Germany could provide a palatable third way. But a lot of painful decisions still remain.
