VW CEO Still Needs to Fix Thorniest Problems After Job-Cuts Deal

Volkswagen AG boss Oliver Blume defused a potentially damaging showdown with labor by unexpectedly winning unanimous backing for his radical overhaul of Europe’s biggest carmaker. The deal still leaves some of the most complex issues unresolved — including the fate of four German plants.

Investors cheered a restructuring package that only hours earlier appeared at risk of collapsing before it was announced late on September 3, following a hastily arranged supervisory board meeting in Wolfsburg, Germany. Blume, who had been heading toward a major escalation with unions and the government of Lower Saxony, bought himself some wiggle room and dodged the fate of some of his recent predecessors who came out on the wrong side of similar labor clashes.

At the same time, it does little to ease the pressure bearing down on Volkswagen both at home and abroad. Chinese rivals are gaining ground in Europe as the German carmaker grapples with high costs, excess capacity and huge investment needs in electric cars and software.

The challenge now is turning a hard-won political accord into actual savings.

“The market debate was never about whether Volkswagen had challenges,” Tim Rokossa at Deutsche Bank said in a note. “It was about whether those challenges could realistically be addressed within Volkswagen’s complex governance structure.”

Earlier this week, management and labor officials still appeared headed for confrontation. But after talks that stretched through the night on September 2 and continued into September 3 — including a series of one-on-one discussions among key decision-makers — negotiators finally broke the deadlock.

Two figures played an important role in brokering the compromise, according to people familiar with the matter: Lower Saxony Premier Olaf Lies and supervisory board Chairman Hans Dieter Pötsch. Lies helped bring the opposing camps together, while Pötsch had spent weeks working behind the scenes. His standing with both the Porsche-Piëch families and labor made him one of the few figures able to act as a trusted intermediary between rival power centers.

The breakthrough crystallized early on September 3 in Volkswagen’s eight-member executive committee, or Präsidium — the inner circle that prepares key decisions for the full board. Chaired by Pötsch, it also includes IG Metall union chief Christiane Benner, works-council head Daniela Cavallo, Lies, Wolfgang Porsche and Hans Michel Piëch, among others.

The committee reached an unexpected agreement after language relating to the fate of the four factories and to a proposal to carve out Volkswagen Passenger Cars and Components was softened, said the people, who asked not to be identified discussing internal deliberations.

Pötsch then convened the board at short notice, with some members accelerating their travel plans so the 20-member body could meet in person. It turned what had been expected to be a bruising Friday showdown into a brief Thursday-evening meeting that yielded a unanimous vote.

To appease labor, management effectively deferred decisions on the four German plants and dropped the proposal to spin off parts of the core Volkswagen business — a move labor argued would have weakened its influence. In return, Blume won backing for a plan that reins in investment, pares back complexity and includes about 50,000 job cuts on top of about the same number already planned.

“The work is only just beginning,” Benner and Cavallo said in a joint statement. “What we will continue never to accept, however, is the burden being placed one-sidedly on employees.”

The new package, dubbed “Future Plan 2030,” includes shrinking VW’s model lineup by around half by 2035 and reducing the complexity of its offering by roughly three quarters. The company is targeting a 9% operating margin by 2030 on annual sales of about 9 million vehicles, and plans around €135 billion ($157 billion) of capital expenditure, and research and development spending between 2027 and 2031.

The roughly 50,000 additional staffing cuts are a planning assumption underpinning that margin target rather than jobs already identified for elimination. The ultimate number could be lower if equivalent savings are found elsewhere or profitability improves more strongly than expected. Compulsory layoffs remain ruled out through the end of 2030 under existing agreements.

Management has argued the overhaul is chiefly about reducing VW’s high production costs in Germany. But the future of plants in Emden, Zwickau and Hannover, as well as Audi’s site in Neckarsulm, was left unresolved. Management has said they lack competitive follow-on production once existing models run out.

Volkswagen will instead examine alternatives ranging from new industrial partners or buyers — potentially including Chinese automakers — to uses outside traditional carmaking. Bloomberg has previously reported that the company is nearing an agreement to produce components for missile-defense systems at its Osnabrück plant, offering one possible template for repurposing excess capacity.

That deal has yet to be confirmed, however, and finding comparable solutions for the four plants now under scrutiny may prove similarly challenging given their high cost bases and the different economics of other industries.

VW’s ongoing challenges are unfolding against a background of rising political tensions in Germany, where years of economic stagnation have helped fuel the rise of the far-right AfD, and stoked concerns about job security.

Polls suggest the anti-immigrant party will comfortably win a regional election in the eastern state of Saxony-Anhalt on September 6, and could secure an outright majority that would allow it govern at the state level for the first time.

Ultimately, the agreement unveiled on September 3 marks a major victory for Blume. In the run-up to the meeting, some key stakeholders had questioned whether he had the determination or stamina to force such a far-reaching package through VW’s complex power structure.

He managed it mostly without triggering the confrontation that had seemed possible only hours earlier, sending the shares up nearly 10% at the open in Frankfurt on September 4, their biggest intraday gain in more than three years.

That is no small achievement at a company where clashes with labor have proved treacherous for previous leaders. Bernd Pischetsrieder was pushed out in 2006 after losing the backing of key stakeholders including employee representatives. Matthias Müller, who led Volkswagen through the turbulent years following the 2015 diesel scandal, was ousted in 2018, and Blume replaced Herbert Diess in 2022 after he repeatedly clashed with the works council.

Once the relief in Wolfsburg fades, Volkswagen still faces formidable challenges. Chinese automakers are intensifying their push into Europe, U.S. tariffs show little sign of disappearing, and geopolitical volatility is testing a production network built for decades of deepening globalization and lower trade barriers.

“Volkswagen is under particular pressure,” Kevin Thozet, a member of the investment committee at asset manager Carmignac, said by email.

“China is producing too many cars. Europe has too many factories. And now, these two problems are colliding.”