EXPLAINED: Will there be job losses and plant closures at Volkswagen in Germany?

What exactly is the deal that's been cancelled?

The deal was a decades-long collective bargaining agreement between Volkswagen and Germany's most powerful trade union IG Metall. Before this was axed by the car titan earlier this week, it guaranteed job security to those covered by it until 2029.

How long are jobs protected for now?

Jobs are now only guaranteed until the end of June 2025 as the plan reverts to the pre-1994 deal unless a new agreement is reached.

"This period now gives us the opportunity to find solutions together with employee representatives on how we can position Volkswagen sustainably, competitively and future-proof," Volkswagen board member Gunnar Kilian said in a statement.

Does this affect all Volkswagen subsidiaries?

It affects the Volkswagen Group – that includes the Volkswagen Passenger Cars brand, its Commercial Vehicles brand, Volkswagen Group Components, and the Group's branches, press officer Maleen Bösenberg told The Local.

So how many employees are affected?

According to the press office, the agreement applies to around 120,000 staff at six plants in Wolfsburg, Brunswick, Hanover, Salzgitter, Emden and Kassel, as well as at Volkswagen Services, Volkswagen Immobilien and digital solutions company dx.one.

The company also attracts international workers. As of 2020, 6.4 percent of Volkswagen's workforce were foreign. 

What's going to happen next?

Volkswagen and Germany's IG Metall trades union have agreed to start wage negotiations in Hanover on September 25th – one month earlier than previously planned – to try to come to a new agreement and stave off strikes that IG Metall had said could take place from the end of November.

READ ALSO: Volkswagen mulls plant closures in Germany 

What if the union and Volkswagen can't come to an agreement?

In that case, the agreements that were in force before 1994 (when the just-cancelled deal started) will apply again from the end of June 2025.

Interestingly, this could end up costing the company a lot more money as the old plan includes higher overtime pay, bonuses and additional holiday pay - equivalent to a significant pay rise for workers.

What about redundancies?

They could well be on the cards - especially if negotiations fail. 

Volkswagen has said that if there is a return to the collective agreement prior to January 1st, 1994 "redundancies for operational reasons cannot be ruled out".

Could we see a repeat of what happened in the 1990s when staff were given the choice between working a four-day working week or taking redundancy?

Possibly, although it's too soon to say. IG Metall has previously said it could consider moving to a four-day week as an alternative to plant closures.

READ ALSO: Four steps to take straight away after losing your job in Germany 

What caused all of this in the first place?  

Volkswagen is not performing so well, according to bosses. Its half-year results were not as good as it expected and the brand been struggling with the transition to electric vehicles, among other things.

The company itself attributes the development to the "very demanding and serious" situation that the European car industry is faced with.

In a management briefing at Volkswagen, Group CEO Oliver Blume recently highlighted the increasingly tough economic environment with new competitors entering the market, such as cheaper Asian rivals in the key Chinese market.

Blume also pointed to the high manufacturing costs it faces in Germany, which are causing it to lag behind its competitors.

"In its current state, with current costs, Volkswagen AG will not be able to maintain employment in its current structure," the company explained. "Volkswagen must increase productivity and sustainably reduce costs, especially at its German locations."

READ ALSO: Electric car woes force German supplier ZF to axe jobs

But Daniela Cavallo, chairwoman of VW's powerful works council, says the problems at Volkswagen are due to "many wrong decisions" in recent years, including a failure to invest in hybrid vehicles or make battery-electric cars in a timely fashion. 

"Management is taking the completely wrong path," she said in an interview in Mitbestimmen!, the newspaper of the Volkswagen Works Council.

She said that closing plants would not wipe off the company's deficits. Volkswagen should instead be looking to reduce complexity, speed up product development and administration and use its resources more efficiently. 

So Volkswagen has terminated the collective agreements – is it going to close factories, too?

Possibly. As well as optimising costs across all sectors, the company has said that these structural adjustments could also include closures at plants where around 300,000 people are employed.

"In the current situation, even plant closures at vehicle production and component sites can no longer be ruled out without swift countermeasures," the company has said.

How have unions reacted to this?

Workers won't be taking any of this lying down.

VW works council chair Cavallo has vowed to put up "fierce resistance to this historic attack on our jobs. With us, there will be no layoffs". 

She will also be part of the team leading the negotiations at the upcoming wage talks. 

Which factories could be affected?

Analysts have previously mentioned the Volkswagen sites in Osnabrück in Lower Saxony and Dresden in Saxony as possible targets.

Meanwhile, according to an interview in the Volkswagen Works Council newspaper, the company considers "at least one larger vehicle manufacturing plant and one component factory in Germany" to be obsolete as a result of the economic downturn and customer reluctance to buy cars. 

According to the works council, this means that all German locations are in the spotlight - regardless of whether they are Volkswagen AG locations or subsidiaries, in western or eastern Germany.

Why is this such a big deal for Germany?

Volkswagen is a huge player and this marks the first time in its 87-year history that it has considered closing some of its factories. It's not good news for Chancellor Olaf Scholz's government either, as it comes at a time when Germany's economy is already struggling.

READ ALSO: German consumer confidence to worsen in September

While the impact on the German economy may be minimal, indirectly and symbolically, it shows that four years of stagnation and a gradual loss in international competitiveness have also reached the global players of the German economy, global head of macro analysis at European bank ING Carsten Brzeski told The Local.

"It also suggests that unemployment is about to increase more broadly in Germany," he said.

"It has already increased by one percentage point over the last year," Brezeski continued, adding that it was "impossible to say" how much it could further increase.

Furthermore, the Volkswagen announcement could increase pressure on the government to step up efforts for structural reform, such as less bureaucracy and less regulation, and investments in infrastructure, digitalisation and education, he explained.