Volkswagen Announces Deal with Workers to Cut Costs

Volkswagen has recently reached an agreement with its workers that will enable the company's flagship brand to save up to 4 billion euros ($4.37 billion) next year through workforce reductions. The German carmaker plans to decrease administrative staff costs at the Volkswagen brand by 20%, as part of its comprehensive restructuring strategy aimed at cutting group costs by EUR10 billion. This move forms part of the brand's goal to achieve a 6.5% profitability target by 2026 and contribute earnings of EUR10 billion by the same year.

A key aspect of the agreement is that Volkswagen has committed to avoiding any compulsory redundancies until 2029. Instead, the company will expand its partial retirement plan to include staff born in 1967 and maintain a hiring freeze. Volkswagen has not set a specific number of job reductions, but rather intends to meet the 20% savings target.

The implementation of staff reductions is scheduled to begin in January, along with other measures such as the streamlining of development times and improvements in procurement processes.

For Volkswagen, high labor costs have long been a significant challenge. Reports of the job-reduction scheme last month prompted analysts to emphasize the urgency for cost-cutting measures at the company. However, progress on this front has been slow, leading to tough negotiations with labor unions.

According to consensus estimates provided by FactSet, analysts anticipate that the Volkswagen brand's earnings before interest and taxes (EBIT) will reach EUR3.06 billion this year, followed by a decline to EUR2.28 billion in 2024. In comparison, the brand achieved EBIT of EUR2.65 billion last year.

Meanwhile, it is worth noting that this development occurs in parallel with the United Auto Workers union's efforts to recruit workers at Volkswagen's Tennessee plant in the United States for the purpose of unionization and securing higher wages.