Volkswagen restructuring faces resistance as job cuts and plant closures stall
Volkswagen's latest restructuring plan faces resistance from unions and the supervisory board amid job cuts, overcapacity and Chinese competition.
The management of Europe’s largest carmaker, the Volkswagen (VW) Group, met with the company’s executive board on 9th July to present yet another major restructuring plan. Less than two years after its last one.
Predictably, the most substantive elements of the program were vetoed by the 20-member supervisory board, leaving CEO Oliver Blume and CFO Arno Antlitz, with one arm tied behind their backs as they try to navigate mounting economic pressures, geopolitical instability, and surging competition. Chinese OEMs are intensifying price wars in Europe while also proving formidable opposition in China itself.
Volkswagen Group strategy hits a governance roadblock
After the highly anticipated meeting with its supervisory board, Volkswagen Group executive team released a statement outlining a “comprehensive package of measures.”
The strategy sets out 12 specific initiatives and a 2030 target vision, aimed at reshaping how the company operates across product planning, manufacturing, and technology development. In practice, the plan signals major reductions in complexity and cost, while pushing Volkswagen Group to refocus resources on the most profitable segments and to accelerate software, platform, and electronic architecture integration.
These measures included:
- Cut model and variant complexity by up to 50%.
- Reduce equipment and option complexity by 75%.
- Prioritize profitable segments
- Tailor development to local demand.
- Speed up software, platform, and electronic architecture integration.
Why Volkswagen cost cutting is no longer optional
Prior to the meeting media reports suggested VW was preparing to cut up to 100,000 jobs and close four German plants. However, the official post-meeting statement omitted any mention of these drastic steps, focusing instead on broader strategic shifts. The works council and IG Metall union have always fiercely opposed compulsory redundancies and plant closures. VW is still yet to close a German vehicle production facility in its domestic heartland in its entire post-war history.
Antlitz acknowledged that previous cost-cutting programs, including a 2024 agreement to reduce the German workforce by 35,000 (rising to 50,000 with brand-specific cuts), are insufficient in today’s volatile environment. Mobility Global said at the time the 2024 agreement could not be seen as anything other than a victory for the unions and would not be sufficient. And this has proved to be the case. The company’s cost base remains 20% higher than key competitors, a gap that CEO Blume has called “unsustainable.”
What happens to the Neckarsulm Audi Plant and VW's EV factories?
The four plants under scrutiny—Zwickau, Emden, Hanover and the Neckarsulm Audi plant—face uncertain futures, particularly as the former two were recently converted to produce electric vehicles (EVs), with demand for the models built at those facilities simply not matching VW’s expectation. For example, demand for the Volkswagen ID.4 certainly does not require it to be built on two lines at two separate plants and overcapacity is rife among the Group’s German production network.
Can Chinese-built vehicles help Volkswagen?
Volkswagen is now considering an option that would have been unthinkable a few years ago: producing Chinese-developed vehicles in Germany. Three scenarios are under review:
- Building Xpeng models in Germany for European sale;
- Localizing Chinese-developed vehicles (such as the ID. Era 9X) for European production; and
- Adopting the China Scalable Platform (CSP) for future European models, marking a significant shift in product development philosophy.
All three appear to have significant drawbacks, not least the first option which would simply help an insurgent Chinese OEM, even if it is a partner of VW itself, greater access to the European market.
And they are also encountering resistance from labor representatives, who also insist that any adaptation for European markets be managed by VW’s German engineering teams, not outsourced to China’s Hefei R&D center.
Volkswagen's biggest obstacle may not be competition from China, but its own governance structure.
The VW supervisory board, which rejected the most substantive elements of the Blume/Antlitz plan, including proposed plant closures and 50,000 job cuts in Germany alone, is split evenly between labor and shareholder representatives. It reportedly rejected the executive board’s most aggressive proposals by a 12-7 vote.
With the state of Lower Saxony (home to VW’s headquarters) also holding seats, the board’s composition makes sweeping job cuts and plant closures extremely difficult. Saxony-appointed board members have historically sided with the labor voting bloc on major restructuring decisions. Notably, the recent resignation of Susanne Wiegand, regarded as the board’s only truly independent member, raises further questions about VW’s ability to push through controversial reforms.
Why Volkswagen restructuring may still fall short
Volkswagen’s predicament is emblematic of the broader challenges facing legacy European automakers. The company is caught between the need for radical transformation and the realities of Germany’s entrenched labor protections. The executive board’s ambitious cost-cutting and restructuring plans are, on paper, exactly what is required to restore competitiveness in a sector being rapidly reshaped by electrification, software-driven vehicles, and aggressive new entrants from China.
However, the practicalities of implementation are daunting. German co-determination laws give labor representatives an effective veto over major strategic decisions. The works council’s opposition to compulsory layoffs and plant closures is not just ideological; it is backed by legal and political power, with the state of Lower Saxony and influential unions holding sway over the supervisory board. This governance structure, which was established when VW was growing after the war, was implemented as it was seen as vital to enfranchise workers in the re-establishment of Germany’s industrial base. However, it is no longer fit for purpose for a company facing the white heat of globalised competition and the technological revolution currently being experienced by the automotive industry.
The plan to build Chinese models in Germany is both pragmatic and risky. It could help fill underutilized capacity and introduce more competitive vehicles to the European market, but it risks internal backlash and potential brand dilution. Moreover, the prospect of relying on Chinese-developed platforms and software for European production represents a significant cultural and strategic shift for VW, which has historically prided itself on engineering leadership.
The supervisory board's decision means the executive team will now focus on global, rather than exclusively German, job cuts. This reflects the constraints imposed by VW's governance structure.
Yet even this approach may not be enough. Volkswagen's cost disadvantage, combined with rapidly shifting market dynamics, suggests incremental changes will fall short. Unless VW can find a way to either bring labor representatives on board with deeper reforms or change the governance structure (the latter being highly unlikely in the short term), it risks a gradual decline in competitiveness.
The subtext of the executive board’s communication after the meeting of July 10th was clear: management is aware of the existential threat but is being hamstrung by internal politics. For Germany, the stakes are even higher. If the VW Group cannot adapt, the repercussions will ripple throughout the country’s industrial base and labor market.