Factory closures, layoffs: Volkswagen caught in the Chinese trap

Out of Western arrogance, the group Volkswagen believed it could invade China and advocated for European weakness. Now, it is forced to lay off workers.

A “social bleeding“. This is how the unions representing the employees of the Volkswagen group define what will soon be announced by the German giant, which has failed to reassess itself after years of dominance centered around diesel. However, the scandal of the 2010s, concerning the manipulation of pollution emissions, revealed much deeper traumas than expected and a very arrogant view of the industry. Every leader who has held the position over the years has taken out millions in dividends, but the truth has now come to light.

Negotiations between management and unions have been stalled for weeks, leading to leaks to the press. In the pages of the German daily Handelsblatt, it is reported that the German group is looking for 4 billion euros in annual savings… which adds to those already negotiated last year. Once that’s said, France’s deficit becomes quite relative!

Closure of three factories in Germany?

No homeopathic treatment here, but a drastic measure to save the soldier Volkswagen. The unions therefore speak of a “social bleeding” with the closure of three factories. Workers had been prepared in advance by the manufacturer, which had floated the idea as early as September 2024, to raise awareness among the workforce. “The board wants to close at least three VW factories in Germany. It also intends to reduce the size of all remaining structures in the country”, stated Daniela Cavallo, president of the Volkswagen group’s works council.

The second decision would be a 10% pay cut for 120,000 German employees in order to regain competitiveness with Chinese competition. However, a European worker, whose social rights are unmatched (and thank goodness for that!), can never compete with a Chinese counterpart…

And that is precisely the problem: Volkswagen has bet everything on China, believing that its reputation would protect it. After two decades of celebration, it is now facing a hangover. The awakening is harsh, marked by a collapse in sales and profitability. Its largest market has turned its back, and this was, of course, predictable. To think that China would allow this to continue indefinitely was at best a gamble, at worst, a fatal arrogance.

The Covid crisis ultimately killed Volkswagen’s business model in China, which now only wants to hear about electric cars… from China. Tesla is holding its own because its reputation in this segment is real. This is not the case for Volkswagen. There, an ID.3 is being sold for less than 15,000 euros. How can one hope to make a profit?

Chez Volkswagen, le rappel des airbags Takata est facturé au client

The end of a myth

Never, since the brand’s inception, had the idea of closing a factory even been imagined. Today, the taboo has fallen, and the outcry in Germany is immense. The government will inevitably have to step in to support the social fallout.

Volkswagen has been prospering handsomely for decades, but the loss of its grandeur, coupled with the arrival of new players (Tesla and the Chinese have captured very large market shares), has destabilized its model. And the boat can quickly capsize. With no other choice today, the group, living beyond its means, must restructure.

The Stellantis group, led by cost-killer Carlos Tavares, has been doing this difficult and necessary work for years. Renault is also applying this to itself and seems to be on the right track, strangely two groups that have not “tapped out” in China. Today, they can be thankful for that.