• Volkswagen, Europe's largest automaker, is considering closing three plants in Germany due to economic struggles.
• The decision could lead to mass layoffs and wage reductions, sparking threats of strikes from the works council.
• The company's struggles are due to high production costs, a slow switch to electric vehicles, and rising competition in China.
• The outcome of the talks between Volkswagen and its unions could set a precedent for other companies in the industry.

Volkswagen, Europe's largest automaker, is grappling with a crisis that has sent shockwaves through Europe's largest economy. The company is considering closing at least three plants in Germany for the first time in its history.

The decision could result in mass layoffs and wage reductions of at least 10%, according to labour leaders. The company's management has been accused of ending a long-standing consensus-driven approach to its relationship with workers, leading to threats of strikes from the works council head, Daniela Cavallo.

The talks between Volkswagen and its powerful unions are taking place at the German group's Wolfsburg headquarters. The company's plans are expected to be released with its third-quarter results, which are likely to highlight the weak demand that has contributed to the crisis. The German plants are reportedly more expensive to operate than the competition, driven by high costs for workers and energy.

The European car market has shrunk from pre-pandemic levels, and once robust demand in China has waned. This has led to Volkswagen tabling proposals on how to tackle the current malaise. The unions, however, cannot hold wider strikes until December due to a previously agreed truce.

Volkswagen's Struggles and Resistance

The company's plans have been met with resistance from the unions. The Works Council, which represents VW employees and holds half of the seats on the Supervisory Board, has accused Volkswagen of shocking its workforce with cost-cutting plans of historic dimensions. The company argues that the cuts are necessary as it struggles with high production costs, a stuttering switch to electric vehicles, and rising competition in key market China.

The decision to restructure comes at a time when the automotive industry in Europe is facing widespread challenges. According to recent data, car sales in the region have fallen sharply since pre-pandemic levels. Thomas Schaefer, Volkswagen passenger cars CEO, says the company "still handles many tasks internally that the competition has already outsourced more cost-effectively."

The company's plans have also been met with political resistance. Chancellor Olaf Scholz's position was that possible wrong management decisions from the past must not be at the expense of the employees, adding that the focus should be on preserving and securing jobs.

Historical Similarities and Implications

The crisis at Volkswagen comes less than a decade after its dieselgate emissions scandal. The scandal, which involved the company cheating on emissions tests, resulted in billions of dollars in fines and lawsuits, and severely damaged the company's reputation.

In a similar vein, the global financial crisis of 2008 saw automakers around the world grappling with falling demand and high costs. Many companies, including General Motors and Chrysler, were forced to seek government bailouts to avoid bankruptcy. The crisis led to a significant restructuring of the industry, with companies closing plants, laying off workers, and focusing on more fuel-efficient vehicles.

The current crisis at Volkswagen is unique in that it is the first time the company is considering closing plants in Germany. The decision could have far-reaching implications for the German economy, which is already grappling with anaemic growth. The automotive industry is a key pillar of the German economy, and any significant job losses could further exacerbate the country's economic woes.

Otherwise, the crisis at Volkswagen is a reflection of the broader challenges facing the automotive industry in Europe. High costs, growing competition, and weak demand are forcing companies to make difficult decisions. The outcome of the talks between Volkswagen and its unions could set a precedent for other companies in the industry.

As the situation unfolds, all eyes will be on Volkswagen and the decisions it makes in the coming weeks and months.