VW, Labor Hammer Out Jobs Pact That Is Fair To All

After months of talks, Volkswagen and its workforce have announced phased cuts where up to 30,000 jobs will be pared through attrition by 2025.

One area of concern for many in the wake of the Dieselgate scandal was it effect on jobs. Indeed, no one has known if there would be an impact on other parts of the scandal took the jobs portion seemingly off the plate. Who was to know that behind-the-scene Volkswagen management and the unions that exert control were in negotiation over jobs.

Victory For Both Sides

And, in what looks like a win for both sides, VW has managed to work out a landmark agreement with its workforce to cut 30,000 jobs worldwide. The jobs cut will amount to huge savings for the automaker -- $3.92 billion (3.7 billion euros). The announcement comes at a time of retrenchment at Volkswagen which has been looking for areas of savings for months.

Earlier this year, the automaker announced a round of cost-savings plans that, when put into place, will result in savings of more than 14 billion euros or about $15 billion. VW was able to pull savings out of their model plans; subcontractors; suppliers and more. The more is represented by the cancellation of two very popular programs at the automaker, Endurance Racing, and World Rallycross. VW is substituting Formula E racing for the enduro piece and is pulling back and plans to participate in rallycross through its Skoda subsidiary.

Friday’s announcement will cut the automaker’s headcount by nearly five percent. The cuts will come through attrition, a far more humane way of reducing headcount than layoffs. They are also scheduled to occur through 2025 when the automaker could impose layoffs.

The announcement by VW and labor comes after months of heavy talks between labor and management. The package they hammered out consists of a balance between wholesale cost cuts and investment. The talks were held against the backdrop of a rapidly changing automotive tapestry where the industry is shifting. The model shift is from traditional forms of propulsion (gas and diesel engines) and driving to car-sharing services and autonomous technology (though some would doubt the wisdom of placing too much emphasis on models that are still quite sketchy and which may never fill in).

“This is a big step forward, maybe the biggest in the company’s history,” Herbert Diess, VW brand chief, told a press conference Friday at the automaker’s Wolfsburg headquarters. “All manufacturers must rebuild themselves because of the imminent changes for the industry. We need to brace for the storm.”

Critical To Restructing Effort

The new labor pact was termed critical to the automaker’s efforts to restructure its biggest unit in the wake of the worst crisis in its history, the Dieselgate scandal. Since the automaker’s admission last year that it had cheated for years on emissions tests, the automaker has seen its reputation hit hard; its sales have suffered to the point where even its successful Audi subsidiary has seen its sales slowed a bit, and the costs continue to mount. Recent estimates put the cost of the Dieselgate scandal at more than 18 billion euros ($18.9 billion or so). Expectations are that before the scandal has finished its impact, the automaker may have to shell out more than 25 billion euros. VW has been looking for cost savings throughout the company. Interestingly, Volkswagen has been hurting for some time – even before the scandal engulfed the automaker.

About 23,000 of the 30,000 jobs will come from the German workforce. The rest will be split among North America, Brazil and Argentina. Analysts and labor leaders welcomed the agreement. Workers were buoyed by VW promises of new electric models and a future expansion of the workforce.

Sources: Reuters, Bloomberg, Automotive News