How VW plans to achieve job cuts in Germany

Originally posted on Automotive News Europe by Christiaan Hetzner.  You can reach Christiaan Hetzner at christiaan.hetzner@gmail.com

WOLFSBURG — Volkswagen hopes to finalize plans this year to reduce its German workforce by a net 14,000 workers by the end of the decade without using to costly severance packages, as the brand seeks to save 3 billion euros in domestic labor costs to help offset the costs of its diesel scandal.

About 7,000 permanent staff close to retirement have already signed contracts to leave the company early through a part-time scheme abbreviated in German as ATZ.

VW personnel chief Karlheinz Blessing said: “Based on our assumptions for natural fluctuation, we are still missing another 2,200 to really be in the target area.”

When asked whether he expected this number of employees to sign ATZ early retirement deals by the end of this year, he said: “That’s the goal, to check this off the list as much as possible.”

VW also expects that it will eventually have to eliminate all its 4,500 temporary posts in Germany, which, along with reductions through natural attrition, will reach the full net figure of 14,000.

As part of its so-called “Future Pact” designed to boost productivity by 25 percent over four years, the VW brand is eliminating 23,000 jobs by 2020 in Germany. Simultaneously, however, it plans to add 9,000 employees in new technological fields such as digitalization and electromobility. As part of a deal with its powerful labor unions, the overwhelming bulk of that increase will be filled by people whose current jobs are being phased out, translating to a net reduction of 14,000. At the end of the program, that will leave just over 100,000 people still employed by the brand in Germany.

Flexibility needed

Blessing warned however that some flexibility in the figures will be needed. While it may be financially attractive at first glance to let go of temporary workers, since it costs nothing, he said exactly this labor force was in general young, able-bodied and qualified.

Losing them might endanger its efficiency goals, which foresees 7.5 percent productivity gains in the first two years and a further 5 percent in the last two. One consequence has been that the Emden plant, where VW builds the Passat and new Arteon midsize models has received an exemption allowing local management to hire hundreds of temporary workers if needed.

Blessing said VW could cut more jobs if necessary to achieve productivity targets “using the tools at our disposal.”

Nevertheless, management’s hands are tied. Compulsory layoffs for example have been ruled out under an agreement with unions. Apart from ATZ early retirement deals, natural attrition and fluctuation, VW may end up having to offer bigger severance deals to prompt people to leave the company.

“Severance packages are the absolute last resort and would only be offered on a case-by-case basis,” Blessing said. “There was a big severance package campaign at VW in 2006 and typically what happens under the required ‘Social Plan’ is that you have those people that have the best chances of getting hired elsewhere leave, while those stay whose chances in the job market are poor.”

The bulk of the 14,000 cuts will not be fully earnings accretive until after 2019 and 2020, however. By the end of this year, Blessing estimates that only about 1,700 permanent employees will have actually left the company under ATZ deals alongside another 2,000 temporary workers.

“The world doesn’t end with the Future Pact, though” Blessing said. Mastering the shift to electromobility with its reduced complexity and fewer hours per vehicle would prove a challenge.

“We don’t know at present how many new jobs might be created through digitalization and mobility services but assuming the overall number of cars sold in Europe doesn’t substantially grow, then you can imagine we will have an issue in the future,” he said. “Thankfully we have a bit of time to shape this process, and that is one of the most valuable aspects about the Future Pact.”

Separately, Mueller said on Wednesday that VW was holding intensive talks with possible partners in Europe and China over battery cells, without being more specific. The carmaker is pondering production of battery cells at a new research facility in Salzgitter, Germany as it plans to triple investment in electric drives to about 9 billion euros ($9.80 billion) through 2022.

By | 2017-08-07T09:33:31+00:00 May 12th, 2017|Categories: Industry News|