Volkswagen Labour clash

Volkswagen's Struggle to Adapt: Labour Costs, EV Demand, and the Rise of Chinese Rivals

In the ongoing feud over the EV market being down in Europe, Volkswagen has added more fire. Recently, Volkswagen scuffed with its labour over spiralling costs at underused German factories.

This showdown has sparked controversy over unveiling a much deeper issue that lies within Volkswagen. The issue stated is, is Volkswagen going out of business?

However, a Reuters review of factory capacity utilization data across Europe reveals that Volkswagen is hardly an outlier – and may be better off than some rivals.

This has added to the woes of the already struggling European market. As it is grappling with complex governance structures, misjudged investments in electric vehicles (EVs), poor management decisions, sliding revenues from China, and Germany's crippling bureaucracy.

Amidst this, Volkswagen, the world's second leading automaker, is also facing these issues. Facing this issue, Volkswagen CFO Arno Antlitz took cognizance of the acknowledged challenge and said, “Premium costs and mobility for all are not compatible. This applies to our German plants, which currently build the majority of our electric vehicles.”

On the other hand, one of the union representatives in Osnabrueck, VW's most underused plant is located, Stephan Soldanski said, “We are calling for Volkswagen to bring out more models that normal consumers can afford – a cheap electric car or cheap combustion engine that's sustainable,"

Now to support Volkswagen’s argument, data compiled by GlobalData shows that Renault and Stellantis have lower average capacity utilisation rates in Europe than Volkswagen.

The figures, which include numbers for BMW, Ford, and Mercedes-Benz, suggest that underused plants are a widespread issue.

According to GlobalData, a utilization rate of around 70% is the minimum for profitability, while 80-90% is considered cost-effective.

Descent in the European Industrial Market

Across Europe, factory utilisation rates for light vehicles dropped to 60% in 2023, down from 70% in 2019.

In lower-cost countries like the Czech Republic, Slovakia, Spain, and Turkey, utilisation rates remained relatively stable, slipping from 83% to 79%.

In contrast, higher-cost countries like France, Germany, Italy, and the UK saw utilisation rates plummet to 54% from 65%.

After the scuffle, the director of Global Autos Production at Global Data, Justin Cox stated, “For Volkswagen, pressure by German unions and politicians to make its EVs at home has become a 'poisoned chalice'.”

He further added, "This decision means the automaker is now using its most expensive locations to make high-cost EVs, which are not selling in the numbers expected."

After gaining light, the issue has also highlighted Germany's high labour costs which is 59 euros per hour in 2022, this has further worsened the issue.

Whereas wages in the Czech Republic and Hungary are significantly lower, at 21 euros and 16 euros per hour, respectively.

New car sales in Europe are struggling, with August sales falling 18% to their lowest in three years. EV sales plummeted 44%, including a 69% slump in German EV sales.

However, Volkswagen's labour agreements ensure that idled workers continue to receive pay. Nonetheless, the company has scrapped its job security agreement at six German plants, enabling layoffs from mid-2025.

This fight between management and labourers is further wounding the company as the Labour representatives hold half the votes on Volkswagen's supervisory board, making plant closures difficult.

Now, unions are seeking a negotiated settlement, but management argues that drastic measures are necessary.

Volkswagen predicts annual European car demand will stagnate at 14 million vehicles, down from 16 million pre-pandemic. Renault and Stellantis have already implemented cost-cutting measures, including job cuts and reduced capacity.

Auto industry experts foresee a growing east-west divide in Europe, with Chinese entrants setting up shop in lower-cost countries. "It will accelerate," said Andy Palmer, chairman of Slovak battery maker Inobat. "It's pretty inevitable."