Volkswagen to Cut Jobs, Close Plants in Major Restructuring

Volkswagen is bracing for a high-stakes boardroom showdown as it prepares to implement its largest-ever restructuring effort, including cutting up to 100,000 jobs worldwide and closing four German factories. The company employs more than 657,000 people across all its brands and aims to reduce investments by about 15% to just over €130 billion ($148.2 billion) over the next five years.

The job cuts are part of Volkswagen's strategy to counter intensifying competition from Chinese car brands. The plan includes closing production facilities in Hanover, Zwickau, Emden, and Audi's Neckarsulm site, putting more than 45,000 jobs at risk. A spokesperson for Volkswagen stated that 'The entire Group—including its brands and subsidiaries—must undergo profound change.'

Volkswagen CEO Oliver Blume has pledged to trim the auto group's portfolio to focus on its core automotive business. As part of this strategy, Volkswagen has entered into an exclusive arrangement with Bain Capital to sell a 51% stake in Everllence, its diesel engine unit, for about €7.4 billion. Volkswagen will remain a major shareholder with a 49% stake.

The restructuring plan puts the spotlight on Volkswagen's unique governance and ownership structure that has drawn criticism from investors for years. The company's governance is complicated by two different classes of shares: preferred stock listed in the German benchmark DAX index, and common stock which carries voting rights. Most of the group's equity is owned by Porsche SE, the investment vehicle of the Porsche and Piech families, which holds a 31.9% stake in Europe's top carmaker.

Porsche, also under Volkswagen's umbrella, is facing significant challenges. Developments in China have made it clear that Porsche's business model is no longer viable in its current form. The company has already agreed to cut 3,900 jobs with unions and plans to focus on high-end models and sweeping cost cuts.

The restructuring plan faces strong opposition from German lawmakers and powerful labor unions ahead of a crucial supervisory board meeting scheduled for July 9. The General Works Council and the industrial union IG Metall have pledged to push back against the reported job cuts and plant closures, stating they would prevent such plans 'with all our might.'

The German government has also expressed opposition to the restructuring plans. Chancellor Friedrich Merz's coalition government, which is grappling with historically low approval ratings, aims to preserve manufacturing jobs in Germany. A government spokesperson stated that the ultimate goal is 'to preserve the locations of the German manufacturers and to guarantee jobs.'

Volkswagen agreed a deal with unions in late 2024 to avoid factory closures in Germany and rule out compulsory redundancies until the end of 2030. The resistance to Volkswagen's reported restructuring plans paves the way for a turbulent period of negotiations, according to Rico Luman, a senior sector economist at ING.

Volkswagen is one of several German automakers making cuts as Chinese companies gain ground in both Germany and the rest of Europe. BMW and Mercedes-Benz, as well as Stellantis and Renault, have lost market share in Europe as BYD, Chery, and other Chinese brands have surpassed 10% of car sales on the continent after years of slow growth.

Experts have questioned whether the increased moves will have their intended effect. 'Every European player is losing today,' Thomas Besson, an auto market analyst at Kepler Cheuvreux, told The Times. 'This is a highly challenging situation for European carmakers because Chinese [manufacturers] are progressing [in Europe] at a much faster pace than expected, while [European manufacturers] continue to lose volumes in China and face very adverse conditions in the United States, notably due to tariffs.'

Volkswagen CEO Oliver Blume's plan to cut up to 100,000 jobs and close high-cost German factories is about more than cost savings: it could also mark an attempt to challenge a corporate structure that has long held back change. The company is considering carving out passenger cars and components into separate divisions, which could test the limits of the Volkswagen law. This law entrenches the influence of labor and the company's home state of Lower Saxony, its second-largest shareholder.

The Volkswagen law effectively limits management's ability to close plants. However, creating separate entities for different business units could open a path to sidestep those constraints. Three financial and legal sources said spinning off the passenger car division—heavily exposed to tariffs, weak European demand, and a price war in China—could be a step in that process.

But this move would set up a direct confrontation with powerful unions and political stakeholders. The IG Metall union has already warned that the carve-out plans amount to an 'attack on the VW law,' signaling Blume faces a fight. With the sector in crisis, Volkswagen's shares near 16-year lows, and internal tensions rising, some investors say management has little choice but to challenge the status quo.

In practice, any spin-off would still require shareholder approval of more than 80% under the Volkswagen law, effectively giving Lower Saxony—with 20% of voting rights—a blocking stake. 'Lower Saxony would never back a vote aimed at diminishing its own power,' one of the sources said.

Beyond governance, investors see financial logic in simplifying Volkswagen's sprawling structure, which spans 10 brands and has drawn criticism from investors, including top shareholder Porsche SE. The company might take a page out of Siemens' playbook in streamlining its empire to address the long-standing gap between its market value and the value analysts ascribe to its assets.