German carmaker Volkswagen on Monday warned it will no longer be able to rule out plant closures in the country, citing the specter of major cost-cutting measures in order to “future-proof” the company.
The announcement was sharply criticized by trade unions, with top German industrial union IG Metall labeling the plan as one that “shakes the foundations” of the carmaker.
“The European automotive industry is in a very demanding and serious situation,” Volkswagen Group CEO Oliver Blume said in a written statement.
“The economic environment became even tougher, and new competitors are entering the European market. In addition, Germany in particular as a manufacturing location is falling further behind in terms of competitiveness.”
As a result, Volkswagen Group’s chief executive said the company “must now act decisively.”
Shares of Volkswagen traded 2.2% higher on Monday afternoon.
Volkswagen said that brands within the company would need to undergo a “comprehensive restructuring,” before adding that the current situation means that even plant closures at vehicle production and component sites can no longer be ruled out.
Shares of Volkswagen year-to-date.
“The situation is extremely tense and cannot be resolved through simple cost-cutting measures,” VW brand CEO Thomas Schäfer said in the statement.
“This is why we want to initiate discussions with employee representatives as soon as possible to explore the possibilities for sustainably restructuring the brand,” he added.
The carmaker said it also felt compelled to bring an end to its employment protection agreement — a job security program that has been in place since 1994 — in order to secure “urgently needed structural adjustments for greater competitiveness in the short term.”
A spokesperson for Germany’s finance ministry did not immediately respond to CNBC’s request for comment.
‘A massive threat to jobs’
Volkswagen said all necessary measures would be discussed with the General Works Council and IG Metall. Both groups, however, have been quick to condemn the proposals.
“The board of directors today presented an irresponsible plan that shakes the foundations of Volkswagen and poses a massive threat to jobs and locations,” Thorsten Gröger, district manager of IG Metall, said in a statement, according to a Google translation.
“This course is not only short-sighted, but also extremely dangerous — it risks destroying the heart of Volkswagen,” Gröger said.
Meanwhile, Daniela Cavallo, chair of Volkswagen’s General Works Council, vowed that the group would “fight bitterly” against the board’s proposals.
“The Board of Management has failed. The result is an attack on our employment, locations and collective agreements,” Cavallo said, according to a translation.
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