Volkswagen is cutting production as sales in China fall

Volkswagen said on Thursday it will cut the number of models it offers by up to half to cut costs and better compete with Chinese companies. But the German automaker did not say what the changes would mean for workers who were bracing for major job cuts and factory closings.

The plan, released after a board meeting, appeared to be a tacit acknowledgment that the company had grown too big and complicated and needed to slim down to survive the global shift from fossil-fueled cars to electric cars. This transition dislodged many established automakers and allowed the rise of Chinese automakers.

In recent days, reports in the German press indicated that the company was planning to lay off 100,000 workers and close four factories in Europe by the end of the decade.

Such drastic cuts would be out of character for Volkswagen and German industry, which tend to prefer incremental changes. Labor representatives and political leaders from the German state of Lower Saxony hold a majority on the company’s 20-member supervisory board and have signaled they do not support deep cuts.

Still, some pain seems inevitable. The company said it would aim to produce nine million cars a year, compared with a target of 12 million before the Covid-19 pandemic and 10 million recently. Oliver Blume, Volkswagen’s CEO, said in a video statement that there was a need to “get rid of excess capacity,” suggesting the company may still close factories.

“The geopolitical situation has become more critical over the last 12 months,” Mr. Blume said, adding: “The next few years will decide who will play a decisive role in the automotive industry.”

But he provided few details, including whether or how the company would like to remain the world’s second-largest automaker behind Toyota, measured by cars sold.

“Urgent questions were not answered by the supervisory board today,” Ferdinand Dudenhöffer, director of the Center for Automotive Research in Bochum, Germany, said in an email. “Uncertainty remains.”

Volkswagen has 111 manufacturing plants on every continent except Australia and Antarctica, according to the company’s website. Its brands include Audi, Porsche, Škoda, Lamborghini and Bentley. Volkswagen also owns 88 percent of Traton, which makes MAN, Scania and International trucks.

Some Volkswagen brands offer very similar cars with slightly different designs and features, which can add cost and complexity. General Motors and Ford Motor dropped brands like Pontiac, Oldsmobile, Saturn and Mercury years ago to simplify production and marketing.

In Neckarsulm in southwestern Germany, where some 15,000 workers assemble models for Audi, residents fear that closing the plant would devastate the local economy built on the rhythm of factory shifts.

“If Audi dies, everything here dies,” said Cayli Halin, 54, who works at the plant’s test center.

It was unclear from Thursday’s announcement how many of Volkswagen’s 657,000 employees worldwide could lose their jobs as the company cuts production. The company’s profit fell 28 percent to 1.6 billion euros, or $1.8 billion, in the first quarter, and its sales fell 2 percent.

Porsche, which has typically provided a large share of Volkswagen’s profits, has been hit by President Trump’s 25 percent tariffs on imported cars. Porsche sports and SUVs are manufactured in Germany and exported to the United States, one of the brand’s most important markets.

Volkswagen’s troubles are an ominous sign for established Western and Japanese automakers. All are struggling to varying degrees with changing technology and competition from Chinese manufacturers such as BYD and Geely, which sell cars loaded with luxury features at relatively low prices.

Chinese automakers sold more cars in the European Union and Britain than Japanese automakers in May, according to data from the European Automobile Manufacturers Association.

Chinese automakers, encouraged by government subsidies, began focusing on electric vehicles years ago, investments that have given them a strong advantage as more Europeans buy such models. About one in five new vehicles sold in Europe is electric, and sales have soared this year due to a rise in fuel prices caused by the war with Iran.

Volkswagen is particularly vulnerable because for many years much of its profit came from selling cars in China, where it was once the top automaker. The company’s sales in China fell 20 percent in the first quarter after falling sharply for several years.

Fears of plant closures have shaken Germany, where the auto industry — and Volkswagen in particular — holds a sacred place in the national consciousness and is a pillar of the economy.

Chancellor Friedrich Merz and his government have tried to support the industry with new subsidies and, among other things, pressured European Union officials in Brussels to loosen some auto regulations, hoping to help German automakers better compete with Chinese rivals.

Mr Merz did not comment on the Volkswagen layoffs ahead of Thursday’s board meeting, but spokesman Stefan Kornelius told reporters last week that “our aim is to prevent factory closures in Germany”.

Ali Alp Cagan, 31, has been working as an information technology professional at Audi for almost two years and is personally not worried about layoffs as he considers his job prospects strong.

“However, overall, the situation is already tense,” he said.

Mr. Cagan and other workers leaving the plant because of the recent shift change accused the company of failing to innovate and that China now makes cheaper and better cars.

The difficult situation of the German automobile industry has strengthened the far-right and far-left political parties in the country. At the Audi plant in Neckarsulm, members of the Marxist-Leninist Party of Germany recently distributed leaflets calling on workers to take part in an unauthorized pre-emptive strike against any closures.

Civic leaders and business owners in the city are worried about their community. Pauline Spies, 56, said the company’s troubles are already hurting business at her travel agency, Michigan Tours.

Harry Leinmüller, 67, has similarly noticed a drop in spending at his wife’s tea shop, Teecultur, which is positioned to catch workers on the side of the street they usually take on their way home from the factory. He fears the layoffs will hurt even more.

“There are so many young people here, some have bought building plots in the countryside. Many will no longer be able to pay off their houses,” he said. “The Chinese are faster than us and have more know-how.”

Mayor Steffen Hertwig, 56, said closing the plant would be “fatal” for the area. But he was adamant that Volkswagen would not close this Audi plant because it was too innovative. According to him, the situation “is in no way comparable to Detroit in the 80s.