Volkswagen to Cut 23,000 German Jobs as It Tries to Lift Profits


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A Volkswagen plant in Zwickau, Germany. The company said its plan would lead to savings of $3.9 billion a year.

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Jens Meyer/Associated Press

Volkswagen will cut about 23,000 jobs in Germany over five years as part of a deal with its powerful labor representatives to improve chronically low profitability at its largest unit.

As it seeks to recover from an emissions cheating scandal, Volkswagen is trying to reduce the cost of manufacturing cars that carry the VW badge, many of which are made in Germany by a work force that effectively controls the company and has resisted job cuts. The plan would lead to savings of $3.9 billion a year, Volkswagen said on Friday.

Herbert Diess, the Volkswagen executive in charge of VW brand cars, said the company needed to brace itself for drastic changes as the automobile industry shifted to electric vehicles.

“Volkswagen has to quickly earn more money and arm itself for the change ahead,” Mr. Diess said at a news conference in Wolfsburg, Germany, where the carmaker is based.

But the relatively modest size of the cuts, which amount to about 7 percent of its German work force and which will be achieved by attrition and early retirements rather than layoffs, is unlikely to close Volkswagen’s productivity gap compared with Toyota. Since last year, the companies have been vying for the title of the world’s largest carmaker, but Toyota has long been more profitable. Toyota has 346,000 employees worldwide compared with 624,000 at Volkswagen.

Volkswagen makes most of its money from Audi and Porsche luxury cars. The unit that makes Volkswagen brand cars, and accounts for nearly half the sales volume, had a profit margin of 1.6 percent during the first nine months of 2016. Volkswagen said Friday that it wanted to achieve a 4 percent profit margin for Volkswagen brand cars.

The company’s cost problem goes back decades and stems in part from the extraordinary power that labor representatives have over company policy.

As at all large German companies, workers hold half the seats on the company’s supervisory board. But at Volkswagen, the workers have de facto control because the state of Lower Saxony owns 20 percent of the voting shares. The state’s two representatives on the 20-person supervisory board almost always vote with labor.

In addition, a special law gives Volkswagen workers veto power over plant closings.

To win worker consent for the plan, which will include a reduction in the use of temporary workers, the company agreed to invest in production of battery-powered cars in Germany.

Unlike some competitors, Volkswagen plans to build its own electric motors and batteries rather than buying them from suppliers. The strategy helps to preserve jobs but is regarded by analysts as less efficient.

Volkswagen has begun promoting electric cars as it tries to rescue its reputation from the emissions scandal. The company has admitted that 11 million diesel cars, including 500,000 in the United States, were equipped with software that camouflaged emissions of poisonous and environmentally damaging nitrogen oxides that were far above legal limits.

The unusual influence of the Volkswagen workers council and the IG Metall union has its roots in the 1930s, when the Nazis confiscated funds from independent labor unions and used the money to build the Volkswagen factory in Wolfsburg. After the war, workers exercised a moral claim to exercise even more clout than is usual at German companies.

Bernd Osterloh, the chairman of the Volkswagen workers council, said at the news conference that the agreement meant that company workers would not need to worry about being fired for the next nine years.

“Volkswagen is in a difficult situation,” Mr. Osterloh said. “All the colleagues know that.”

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