Volkswagen Starts Key Pay Talks With Unions Amid Potential Plant Closures

Volkswagen executives and trade unions will start discussions over pay on Wednesday amid automaker's plan to cut jobs and shut down some plants in Germany.

The conditions within the company are intense due to talks of potential factory closures, which were revealed earlier this month. The announcement was met with a strong opposition from IG Metall union, which represents over 2.2 million employees from the areas of metals and electricals, iron and steel, textiles and clothing, wood and plastics, crafts and services and information and communication technology.

Reuters reported that the union must be able to negotiate new labor deals for more than 130,000 Volkswagen workers in Germany after the group ended agreements earlier in the month. The agreements protected employment at six plants since the mid-90s in western Germany.

The company has pointed out, however, that the high labor costs in Germany has put the carmaker in a disadvantageous position compared to its peers in Europe and in China, both of which have put forward a competitive stance when it comes to the electric vehicle market in Europe.

The talks between Volkswagen and IG Metall came as the country was struggling with labor shortages, high costs and increasing competition. The conditions have also led several large companies to pull back from some of their operations.

"In the current situation, even plant closures at vehicle production and component sites can no longer be ruled out," Volkswagen said in the note sent to employees.

Unions and government officials responded with alarm to the idea of plant closures in the group's home market, a decision never before taken by Volkswagen.

The announcement by one of Germany's blue-chip companies adds to concerns for Chancellor Olaf Scholz after the domestic economy has struggled in recent months.

"The European automotive industry is in a very demanding and serious situation," Volkswagen CEO Oliver Blume was quoted as saying in the memo.

"The economic environment became even tougher, and new competitors are entering the European market," Blume said.

BASF and Thyssenkrupp are among those that pared back their activities. German automakers like Mercedes Benz and BMW were cutting back in their forecasts on profits recently, citing a weak demand in China.

CNBC reported that shares of Mercedes, fell more than 6% last Friday after the carmaker cut its 2024 guidance due to sluggish demand in China. Aside from Mercedes, shares of other automakers like Volvo and Stellantis also dipped.