Volkswagen says cost cuts are urgently needed as profits fall sharply

BERLIN – Volkswagen said significant cost cuts are urgently needed as it reported a sharp drop in third-quarter profit on Wednesday and faced employee representatives angry about the possibility of an initial factory closures in Germany.

The company reported net profit of 1.58 billion euros ($1.7 billion) for the July-September period, down 64% from the 4.35 billion euros it earned a year earlier. Turnover fell only marginally, falling by 0.5% to 78.49 billion euros.

The figures came two days after the head of Volkswagen’s works council said management had informed employee representatives that it wanted to close at least three factories in Germany. The company has not publicly announced its plans.

Volkswagen said in early September that the headwinds in the automotive industry mean that factory closures cannot be ruled out in his homeland, and must drop a job protection promise in place since 1994 that would have ruled out layoffs until 2029.

It cited factors including new competitors entering European markets and economically stagnant Germany’s deteriorating position as a production location. European car manufacturers are facing increasing competition from low-cost car manufacturers Chinese electric cars.

The latest results “demonstrate the urgent need for action in an unstable environment characterized by intense competition,” said Chief Financial Officer Arno Antlitz. “This is why we are faced with important and painful decisions that we must make together and bear together.”

“We have not forgotten how to build great cars, but costs – especially in our German facilities and factories – are far from competitive,” Antlitz said. “That is why things cannot continue as they are now.”

Citing the confidentiality of conversations with employee and union representatives, he said he would not comment specifically on plans or “speculations.”

A second round of those talks took place on Wednesday at Volkswagen’s headquarters in Wolfsburg.

Thorsten Gröger, the regional leader of industrial union IG Metall, said ahead of the meeting that the company “must at least declare its willingness to enter into a negotiation process with us aimed at developing alternatives to factory closures and layoffs.”

Otherwise, he noted that a no-strike obligation under the latest wage agreement with Volkswagen expires on December 1.

After the talks, Gröger said that in any case the negotiations did not immediately fail, but that demands such as a 10% salary cut were unacceptable and that there was no word yet on what contribution senior managers and shareholders would make to achieving savings.

The head of the works council, Daniela Cavallo, said that “we are not prepared to talk about labor cost targets separately; We want to work together to develop a master plan, a future plan for the company that excludes factory closures and layoffs.”

Volkswagen has about 120,000 employees in Germany, where it has ten factories, six of which are in the northern state of Lower Saxony, including Wolfsburg.