Volkswagen Reaches an Agreement to Avoid Germany Plant Closures

German automaker Volkswagen has agreed to avert a possible plant closure in Germany by ending a three-month tussle with its union on the back of a faltering economy.

Under the deal, the company agreed to run all its 10 factories and will guarantee jobs to the workers until 2030. Volkswagen will also carry out a restructuring plan under which over 35,000 jobs will be slashed via retirement and attrition.

A union representing Volkswagen workers named IG Metall has withdrawn its demand for a wage increase until 2031, while also agreeing to cuts and bonuses.

Daniela Cavallo, the head of the works council at Volkswagen said, “No site will be closed, no one will be made redundant, and our company wage agreement will be secured for the long term.”

The dispute has also strained relationships among its 120,000 workers with the 87-year-old brand. The workers said that the management failed to acknowledge its objective of weighing the welfare of the company and its employees on an equal footing.

Oliver Blume, the chief executive of Volkswagen said, “With the package of measures achieved, the company has set a decisive course for its future in terms of costs, capacities and structures.”

The union has agreed to create a communal fund by promising a wage increase of 5% per worker over 5 years. The fund will help compensate employees whose working hours are subject to reduction or who are forced into early retirement via restructuring. Previously, the union promised a 7% increase in wages.

Notably, the deal will save funds to the tune of 4 billion euros, or roughly $4.2 billion, by reducing the production capacity by 734,000 cars over the span of 5 years. This will allow Volkswagen to expand its horizon in new verticals.

Beatrix C. Keim, director of the Center for Automotive Research in Duisburg said, “I think it sends a good signal to the work force and creates confidence that the employees are valued.”

Notably, sluggish demand in Europe and China and burgeoning costs of labour and electricity in Germany have hit the financials of the company. Volkswagen reported a fall in net profit to €2.86 billion, or $3.1 billion during the months spanning from August to September, lowest in three years.