Volkswagen mulls historic German plant closures

By Sharon Kimathi, Energy and ESG Editor, Reuters Digital

Hello!

It’s a rare corporate governance special in today’s Sustainable Switch as we rev up our engines and drive into the Volkswagen saga.

So, what’s been going on with the German carmaker?

Well, the auto giant is weighing its first ever plant closures in Germany and its powerful unions are ready for a fight.

Arno Antlitz, chief financial officer and chief operating officer at Volkswagen Group, said in a speech to staff at its Wolfsburg headquarters that the carmaker has “one, maybe two” years to turn its main car brand around.

Heckled with shouts of “Auf Wiedersehen” – German for ‘goodbye’ – Antlitz told a gathering of 25,000 workers that they needed to work with management in cutting spending to help the brand survive the shift to electric cars.

He told the meeting at Volkswagen’s Wolfsburg headquarters that Europe’s car market had shrunk after the pandemic and the company was facing a shortfall in demand of about 500,000 cars, equivalent to about two plants.

“The market is just not there,” he said according to excerpts of his speech, adding he did not expect sales to recover.

Also on my radar today:

Staff gathers before Volkswagen’s works council holds a meeting with workers in Germany to about its cost-cutting drive in Wolfsburg, Germany. Moritz Frankenberg/Pool via REUTERS

VW is one of the most significant companies in Germany and a major pillar of the country’s economy. As the largest automaker in Germany and one of the largest globally, Volkswagen holds a central position in Germany’s industrial landscape.

Volkswagen is one of Germany’s largest private-sector employers, employing about 670,000 people globally, with more than 290,000 employees in Germany alone.

The carmaker said it would prematurely end a job security programme in place since 1994 and set the stage for plant closures in Germany.

Analysts have in the past named VW sites in Osnabrueck, in Lower Saxony and Dresden, in Saxony, as potential targets for closure. The state of Lower Saxony is Volkswagen’s second-largest shareholder and supported its review.

IG Metall, which is Germany’s largest trade union and sits on Volkswagen’s supervisory board, says the job security put in place in 1994 only covers Volkswagen plants in Wolfsburg, Hanover, Braunschweig, Salzgitter, Kassel and Emden.

Large-scale layoffs could create social challenges, such as increased pressure on social welfare systems, reduced community investment, and potential political ramifications.

As it stands, VW’s works council considers one large vehicle plant and one component factory in Germany to be obsolete.

The works council vowed “fierce resistance” to the executive board’s plans.

Volkswagen’s works council head Daniela Cavallo, a member of the powerful IG Metall union, said she expects CEO Blume to get involved in negotiations too.

The union said on Thursday it will leave no stone unturned in coming up with alternatives to the carmaker’s threats of plant closures, with a four-day week as one option.

Thorsten Groeger, head of IG Metall for the Lower Saxony region where Volkswagen is based, said agreements struck between the company and unions during previous crises were designed specifically to get the carmaker through difficult situations and should not be thrown overboard in this one.

“The situation is extremely tense and cannot be overcome by simple cost-cutting measures,” Volkswagen brand chief Thomas Schaefer said in a statement.

IG Metall has thwarted previous attempts at more deep-rooted changes, most recently in 2022 when Herbert Diess departed as CEO.

Volkswagen’s works council head Daniela Cavallo, a member of the powerful IG Metall union, said in an interview on Volkswagen’s intranet that its management had made “many wrong decisions” in recent years, including not investing in hybrids or being faster at developing affordable battery-electric cars.

Instead of plant closures, the board should be reducing complexity and taking advantage of synergies across the Volkswagen group’s plans, said Cavallo.

Francis Dean speaks at a press conference on the day a second report is published as part of the inquiry into the deadly 2017 Grenfell fire, in London, Britain. REUTERS/Jaimi Joy

The Business & Human Rights Resource Centre recently released a report on the human rights and environmental impacts of extracting and processing nickel, a critical component of electric vehicle batteries, and shared the comments below:

“Electric vehicle companies and investors have a crucial role to play in cleaning up the industry to deliver a just transition.

“If these companies are serious about curbing carbon emissions, they must begin by addressing the human rights risks in their supply chains – and this starts with improving their transparency and sourcing practices. 

“Not only would this make it easier to identify, understand and remediate abuses linked to them, but it is also becoming a necessity.

“EU regulations, along with increasing investor interest in more rights-respecting nickel mining operations, requires EV companies to adopt responsible mineral sourcing policies, be more transparent and conduct adequate human rights due diligence along their supply chains. 

“If we are to achieve a true just and equitable transition to renewable energy that advances human rights, EV companies can no longer afford not to know where their nickel comes from. 

“EV companies, battery manufacturers and investors must recognise their role and use their unique leverage with suppliers to drive supply chain transparency and address abuse through robust human rights and environmental due diligence. Unless this is urgently done, the positive momentum towards electric vehicles risks being derailed.”  

In keeping with the auto industry focus in today’s newsletter, major automakers have seen slowing demand for electric vehicles (EVs) partly due to a lack of affordable models and the slow roll-out of charging points, while also bracing for the effects of European tariffs on electric cars made in China.

Volvo Cars said in the statement that by 2030 it now aimed for between 90% and 100% of cars sold to be fully electric or plug-in hybrid models, while up to 10% would be so-called mild hybrids, where electric power only supplements the combustion engine.

Dog Deezi from an Istanbul shelter lies on the grass during a walk with its owners Caroline and Meike in Haarlem, Netherlands. REUTERS/Piroschka van de Wouw

Today’s newsletter wraps up with an animal conservation initiative in Turkey.

Former Istanbul street dogs Dali and Deezi now live in the Netherlands, enjoying a pampered home life after years in a shelter in the Turkish city, and as other strays face being rounded up under a new law to clear them from the streets.

Turkey’s parliament passed a law in July ordering the impounding of the country’s estimated four million stray dogs, despite protests by animal lovers and the opposition, who fear it will lead to many being put down.

Animal rights activist Nilgul Sayar, who runs an NGO shelter for dogs near Istanbul, has sent hundreds of dogs abroad for adoption but says demand has jumped since the law passed.

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