Volkswagen Faces Major Challenges Amid Cost-Cutting Measures and Global Competition

Porsche-Piëch Family Backs Factory Closures to Cut Costs

Volkswagen’s largest shareholder, the Porsche-Piëch family, has thrown its weight behind the company’s plan to close several German factories. The family, which controls Porsche SE—the majority owner of Volkswagen—argues that drastic measures are needed to keep the automaker globally competitive.
Volkswagen is grappling with sluggish sales in Europe, high labor costs, and excess production capacity. The move to shrink operations is seen as essential for adapting to shifting market demands and ensuring long-term stability.

Labor Unions Push Back With Alternative Proposals

German labor unions have pushed back against the closures, suggesting less drastic alternatives like cutting dividends, reducing executive bonuses, and implementing shorter working hours. They estimate these measures could save around €1.5 billion.
However, the Porsche-Piëch family rejected the proposals, maintaining that deeper restructuring is necessary. Volkswagen’s broader plan includes laying off thousands of workers, closing plants for the first time in Germany, and cutting pay by about 10%—part of a €10 billion cost-cutting target that has fueled tensions with unions.

Financial Strains on Porsche SE Raise New Concerns

The financial situation adds another layer of urgency. Porsche SE, heavily invested in Porsche AG, is under pressure from mounting debt. A potential reduction in Volkswagen dividends could further strain its position. Facing a volatile market outlook, the Porsche-Piëch family is reportedly considering cutting its Volkswagen stake by as much as 40% to stabilize its finances.

Chinese Competition Heightens Pressure

Volkswagen’s troubles are compounded by rising competition from Chinese automakers like BYD, Geely, and SAIC. These companies are offering electric vehicles at lower prices, eating into European market share.
Although the EU has introduced tariffs on Chinese EV imports, some Chinese brands are pivoting to hybrids—which are not currently subject to the same tariffs—putting additional pressure on European manufacturers. Volkswagen is racing to defend its market position amid this intensifying competition.

Labor Talks Continue Amid Threat of Strikes

Labor tensions remain high. Volkswagen has entered negotiations with major unions like IG Metall to avoid widespread strikes. But talks have been slow and contentious, with workers already staging protests against layoffs and pay cuts.
As the holiday season approaches, the risk of further disruptions looms large. How Volkswagen manages these labor challenges will be critical as it tries to implement its restructuring plan while maintaining workforce morale.