Volkswagen secures labor deal to cut capacity, avoid factory closures

Investing.com — Volkswagen AG (OTC:) has reached an agreement with labor leaders to reduce production capacity at its flagship brand, while avoiding any factory closures. The deal, which concludes three months of intense negotiations, also prevents further union strikes.

Under the agreement, Volkswagen (ETR:) committed to maintaining operations at all 10 of its German factories and reinstating job security agreements until 2030, as disclosed by the works council on Friday. In return, employees agreed to give up some bonuses, decrease the number of apprentices who receive permanent employment, and reduce production at five locations by several hundred thousand units.

The measures were agreed upon after five rounds of talks, and are significantly less severe than the substantial savings Volkswagen initially proposed. Labor leaders strongly resisted the company’s original plans to dismiss thousands of workers, lower monthly wages, and shut down three German factories to enhance the competitiveness of the Volkswagen brand.

However, management was successful in persuading labor leaders to shift the production of the Golf hatchback from the Wolfsburg factory in Germany to Mexico, and to decrease capacity at its electric vehicle plant in Zwickau.

The agreement provides Chief Executive Officer Oliver Blume with a fresh opportunity to revitalize Europe’s largest automaker as it faces a declining market share in China and a slowdown in demand for electric vehicles in Europe and the US.

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