Less than 48 hours after Volkswagen said it was considering historic factory closures, the German automaker will face another test: facing down one of the world's most powerful labor groups.
The air is fraught with tension, as some workers chant, “we are Volkswagen—you are not” at the company's Wolfsburg headquarters.
Volkswagen CEO Oliver Blume and labor leaders agreed on a €10 billion cost-cutting drive last year to bolster the company’s earnings. That’s resulted in hiring freezes and temporary worker layoffs. Yet none of those measures were nearly as severe as possible plant closures—unheard of in Volkswagen’s 87-year history.
The town hall, expected to last several hours on Wednesday, will address about 18,000 workers.
It’s unclear how many jobs would be at risk should Volkswagen decide to close its factories. However, given that the company ended its 30-year-old job security program—the employment protection agreement—news of factories potentially being shuttered won’t be easy for employees to swallow.
Half the seats in Volkswagen’s supervisory board are controlled by labor representatives, giving them a great deal of power in determining the auto company’s future course.
The General Works Council, led by Daniela Cavallo, is a group of staff representatives lobbying for Volkswagen’s workforce. It has said it will “fiercely” defend Volkswagen’s staff and has called for clear short, medium, and long-term plans.
"The very future of the Volkswagen [brand], the heart of the company, is in question and we will resist bitterly. There will be no Volkswagen plan closures with me!" Cavallo told local news agency dpa. Her speech on Wednesday will accuse the company’s board of not doing its job in managing its costs, according to Bloomberg.
IG Metall, an influential metal workers union with sway at the automaker, told CNBC in a statement that a potential closure “shakes the foundations of Volkswagen and poses a massive threat to jobs and locations.” The group said the company’s brand chief, Thomas Schaefer, admitted to last year’s cost-cutting plans facing “severe setbacks.”
Representatives at Volkswagen and IG Metall didn’t immediately return Fortune’s request for comment.
High stakes for Volkswagen
Volkswagen, which also makes Porsche, Skoda and Audi cars, has a sprawling operation across Germany, employing nearly half its 650,000-strong workforce.
Apart from being a behemoth in its own country, it’s also the highest-ranking European company on the Fortune Global 500 list, demonstrating its clout in a global context.
It’s not been an easy few years for Volkswagen—it has been throttled by lackluster electric vehicle demand amid growing competition from Tesla and other Chinese challengers. Other carmakers are facing similar pains, although, in Volkswagen’s case, even its Chinese business is succumbing to local rivals.
Volkswagen has lost 500,000 in car sales, which is the equivalent of two factory’s worth of production, CFO Arno Antlitz said, according to Bloomberg. Last year, it made 9.24 million vehicles—sharply lower than its capacity of 14 million.
Germany’s sluggish economic growth in the past year has added to Volkswagen’s squeezed profit margins.
“The European automotive industry is in a very demanding and serious situation,” Blume said earlier this week. “The economic environment became even tougher, and new competitors are entering the European market. In addition, Germany in particular as a manufacturing location is falling further behind in terms of competitiveness.”
The stakes are high for Blume. Union clashes over improving Volkswagen’s efficiency in Germany have toppled his predecessors.
The company seems to have tried averting a crisis with its labor union—last month, a local outlet reported it was offering up to €450,000 to its staff to leave the company and encourage early retirement.
However, to effect changes as big as factory closures, a monetary incentive would be insufficient. The labor representatives, who have vehemently opposed the plan thus far, will also need to come around.
