Volkswagen shares rose 6% on Friday after its board of directors approved sweeping cost cuts aimed at confronting challenges including ferocious Chinese competition and US tariffs.
Investors were cheered by CEO Oliver Blume’s success Thursday in pushing the streamlining effort through the board, where employees are strongly represented.
The plan envisions reducing Volkswagen’s work force by 50,000, phasing out four factories in Germany to eliminate expensive excess production capacity, and slimming the company’s roughly 150 different models to half that.
Perhaps the biggest challenge the company is facing is China, formerly a major source of profits. The overall Chinese market has slumped by more than 20% this year as local competitors launch hundreds of new models amid fierce price competition.
VW has also been hit by higher U.S. tariffs on cars imported from Europe. Volkswagen’s profits fell by 31% in the first half of the year to 3.1 billion euros ($3.6 billion), even though outside of China it sold more cars worldwide than the same period last year.
Volkswagen’s worker-friendly structure, with employee representatives holding half the board seats and the local government of Lower Saxony two, had raised doubts about whether Blume could push through his plan, which was rejected at a board meeting in July.
The board decision was a “much better than feared outcome,” wrote Deutsche Bank analysts. While it doesn’t solve VW’s challenges overnight, “it removes one of the biggest investor concerns: whether the company is still capable of making the difficult decisions required to address them.”
They said it could have a “halo effect” on other German manufacturers and encourage them to make similar difficult adjustments.
Volkswagen said that “currently” it plans to phase out production over 2031-34 at four plants, in Emden, Zwickau, Hannover und Neckarsulm, although it held out the possibility of finding other uses for the plants. Slimming the number of models would mean higher volumes per model, lowering fixed costs.
The job cuts would include management personnel as well as assembly line workers and would be accompanied by streamlining of management structures to speed decision-making.
Volkswagen, which has some 650,000 employees, is already in the process of reducing headcount under an earlier restructuring. In an online Q&A on the company’s website from Aug. 21, Blume said that the company had already signed 37,000 contracts to reduce headcount under that set of cost cuts, mainly through early retirement.
In addition to the core Volkswagen brand, its other nameplates include Audi, Skoda, Porsche and SEAT.