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Volkswagen, Germany's national carmaker, has formalized the largest restructuring plan in its history, affecting as many as 100,000 employees. However, severe backlash is expected due to Volkswagen's unique governance structure, in which labor unions and regional governments wield decisive voting power. The German corporate model, sustained through grand compromises among the government, businesses, and workers, appears to be losing its way.
According to Reuters on the 8th (local time), Volkswagen held a supervisory board meeting on the 9th to discuss a restructuring plan involving 50,000 employees. Late last month, the German outlet Manager Magazin reported that Volkswagen was considering restructuring involving up to 100,000 employees—adding 50,000 more to its previously announced plan to cut 50,000 jobs by 2030. At the time, Volkswagen gave no definitive answer, but with this supervisory board meeting, it has effectively formalized the expanded restructuring. The 100,000 figure represents one-sixth of Volkswagen's global workforce.
At the meeting, the closure of four German plants—Hanover, Emden, Zwickau, and Neckarsulm—was also placed on the agenda. In addition, the discussion covered spinning off the core Volkswagen passenger car division into a separate legal entity and reducing the number of vehicle models from 150 to fewer than 100.
Volkswagen has a governance structure under which plant closures are impossible without union consent. The supervisory board is a body that German listed companies are required to establish to check management (the executive board), and companies with 2,000 or more employees are subject to the "Codetermination Act," which requires that half of the supervisory board be filled with worker representatives. This also applies to other large German companies such as BMW. Currently, Volkswagen's supervisory board has only 19 of its 20 seats filled, with one management-side director seat vacant. Of these, the union holds 10 seats, giving it an edge over management.
On top of this, Volkswagen is subject to the "Volkswagen Act," enacted during its privatization in 1960, making restructuring even more difficult. Under this law, matters concerning the establishment or relocation of production facilities require the separate approval of at least two-thirds of the supervisory board. Moreover, while ordinary German companies need approval from at least three-quarters (75%) to pass important management resolutions at shareholder meetings, Volkswagen requires the approval of at least four-fifths (80%). In addition, the state of Lower Saxony and the federal government are each guaranteed the right to appoint two directors to the supervisory board.
Foreign media see the Zwickau and Neckarsulm plants as relatively more likely to close. The Volkswagen Act applies only to the single legal entity "Volkswagen AG," while the Zwickau plant is owned by the Volkswagen Sachsen entity and Neckarsulm by the Audi AG entity. However, Bloomberg predicted this too would face enormous resistance from unions and local politicians.
Foreign media assess that the German-style joint-stock company system, epitomized by Volkswagen, has supported the German economy for decades but has revealed its limits in the face of a rapidly changing global economy.
In the first quarter of this year, Volkswagen's revenue was 19.897 billion euros and operating profit was 73 million euros, down 6.3% and 34.8%, respectively, from the same period a year earlier. Its operating margin fell 0.1 percentage points to just 0.4%. Meanwhile, Chinese cars are rapidly eroding the European market. According to May new car sales figures released by the European Automobile Manufacturers' Association (ACEA), sales by five Chinese automakers—BYD, SAIC, Zhejiang Geely Holding Group, Chery, and Leapmotor—reached 138,410 units across 31 major European countries, up 65% from the same month a year earlier. In June, Chinese automakers' share across 31 European countries reached 12%, surpassing Japanese automakers (11%) for the first time.
Hildegard Müller, president of the German Association of the Automotive Industry (VDA), stressed in a recent interview with Bloomberg, "Manufacturers like Volkswagen and Stellantis have struggled for too long due to expensive energy and labor costs, as well as bureaucracy that puts them at a competitive disadvantage," adding, "There must be a program for restructuring."
