Summary of Key Points
Due to high operating costs and continuously declining performance, Volkswagen plans to lay off 100,000 employees globally (including the previously announced 50,000 plus an additional 50,000), which is the first time this has been officially confirmed. The company is also attempting to reduce costs and increase efficiency by cutting models, reorganizing factories (either for military production or shifting to produce Chinese models), and selling off assets. However, these measures face resistance from trade unions. Its goal is to boost the operating profit margin to 10% by 2030 in order to reverse the current situation of plummeting profits and declining sales.
Why Lay Off 100,000 Employees?
Volkswagen CEO Oliver Zipse admitted in an internal letter that the company's operating costs are 20% higher than those of its competitors. Half of the indirect costs (such as management, office expenses, and logistics, which are not directly related to car manufacturing) come from employee salaries. If the company wants to maintain current salaries, it will need to cut staff to make up for the difference—this would mean an additional 50,000 layoffs on top of the previously announced 50,000, totaling 100,000 in total.
Volkswagen currently has 667,000 employees globally, so a layoff of 100,000 would represent nearly 15% of the workforce. However, this is just a theoretical estimate; the company is still assessing how many employees can be cut across different brands and regions. The logic behind this decision is simple: there isn't enough money to support all employees without reducing salaries.
Layoffs and Factory Closures Are Not Easy—Trade Unions and Supervisory Boards Pose Barriers
Volkswagen cannot lay off employees or close factories at will. At the end of 2024, the company signed an agreement with the trade unions that states no forced layoffs or factory closures are to occur before 2030. As a result, the layoff and closure plan submitted by the board of directors was directly rejected by the supervisory board.
The two parties are still in negotiations: the board wants to implement 12 reform measures (including layoffs and closures) to make the company more efficient, but the supervisory board has only approved measures that do not require its approval (such as model cuts). This is why Volkswagen is currently focusing on cost-cutting methods that do not involve direct staff reductions.
Other Ways to Reduce Costs
To save money, Volkswagen is taking the following steps:
1. Cutting Models: The company plans to reduce the number of models by half and decrease the range of options offered by 75% (for example, from 10 color choices to maybe just 2). Nearly 10 models are on the elimination list, including the Volkswagen Sagitar, Skoda Octavia, Cupra Raval, Audi Q5 Sportback, Q6 E-tron Sportback, Porsche Taycan (electric and fuel versions), and Cayenne Coupe. These cuts are expected to save €6.5 billion (about ¥50 billion) by 2031.
2. Reducing Production Capacity: Volkswagen is reducing its annual production from 10 million vehicles to 9 million, focusing on the models that sell well.
3. Selling Off Assets: There are rumors that the company plans to sell its motorcycle brand Ducati and consider listing Lamborghini as a separate entity, both of which aim to quickly generate cash.
If Factories Cannot Be Closed, What Are Other Options?
If the four German factories (Zwickau, Emden, Hanover, and Neckarsulm) cannot secure new orders, they may need to be closed. Volkswagen has considered two alternative approaches:
1. Switching to Military Production: For example, the Osnaubrück plant, which was scheduled for closure, is now producing armored vehicle cockpits for Germany's largest arms manufacturer, Rheinmetall, turning into a “tank factory.”
2. Shifting Production to China: The governor of Lower Saxony (a major shareholder in Volkswagen with 20% voting rights) has suggested that some Chinese-produced models be manufactured in Germany. This would keep the factories operational and maintain jobs. Volkswagen is evaluating this option.
How Serious Is the Performance Pressure?
Volkswagen is facing significant challenges:
- The operating profit margin for 2025 is only 2.8% (with a target of 10% by 2030), a year-on-year decrease of 54%, and after-tax profits have fallen by 44%, reaching the lowest level in nearly a decade.
- The first quarter of 2026 was even worse, with declines in revenue, profit, and sales (revenue down 2.5%, profit down 14.3%, and sales down 4%).
Although Volkswagen has €34.5 billion in cash on hand, layoffs are only a temporary solution. The real challenge is how to manage the business effectively while reducing operations.
Conclusion
Volkswagen is in a difficult situation: it needs to cut costs through layoffs, model cuts, and asset sales, but is constrained by trade unions and agreements. Transforming into military production or shifting production to China are alternative strategies to avoid permanent factory closures. Whether these efforts will be successful depends on market conditions and compromises from all parties involved. For consumers, there may be fewer Volkswagen models available in the future, but the remaining ones could be more refined versions. However, it's uncertain whether prices will increase as a result.