Volkswagen plans to cut car lineup by up to half

Labor unions and state officials oppose planned factory closures at Volkswagen

Volkswagen said Thursday it plans to cut its car lineup by as much as a half and further reduce its production capacity as part of a second major restructuring in under two years. Chief Financial Officer Arno Antlitz said the cost reductions agreed under previously established programs are insufficient given the current economic and geopolitical environment, according to The Wall Street Journal.

The German automaker faces competition from Chinese electric vehicles, which have eroded its business in China that for years subsidized operations back home, the outlet reported. Chinese brands are making inroads into Volkswagen’s European heartlands. U.S. President Donald Trump’s tariffs have added billions of dollars in costs to its import-reliant American business. Germany is the most expensive country in which to produce cars, costing more per worker than anywhere else, according to the VDA trade body. Even within Europe, automotive labor costs in countries such as Portugal, Romania and Hungary are less than a third of German levels. Energy is also more expensive in Germany than in many European nations, with the country no longer benefiting from cheap Russian gas following the war in Ukraine.

Philippe Houchois, an analyst at Jefferies, said: “Every business model at some point runs its course. The idea that size alone gives you scale is so 20th century.”

Last year the company’s operating margin fell to 2.8%, its worst performance since the 2015 diesel scandal. Chief Executive Oliver Blume has outlined an ambition to achieve a margin between 8% and 10% by 2030, a level Volkswagen has not reached in at least two decades, according to the Journal.

While the plan implies factory closures and job losses that could run into the tens of thousands, management avoided detailing the potential impact on its workforce, which it must hash out with labor representatives.

Labor holds unusual power at Volkswagen. Union representatives sit on the supervisory board and typically enjoy the backing of officials representing a 20% stake held by the state of Lower Saxony. A special “VW law” gives the politicians a veto in major decisions. State officials have already said they would oppose factory closures. The union organized protests outside Volkswagen’s German plants on Thursday.

Volkswagen has tried to slim down as profits have dwindled. It struck a deal with unions in late 2024 to shed 35,000 jobs by 2030 at the company’s core operations in Germany. Negotiations at Audi, Porsche and other German subsidiaries brought the total to roughly 50,000. The two sides also agreed to cut production capacity at German plants but stopped short of factory closures. But progress has been slow, with the company relying on early retirement programs and voluntary layoffs to keep peace with the union. At the end of last year, Volkswagen still employed about 660,000 workers, roughly one for every 14 cars it sold.

By comparison, Toyota employed roughly 410,000 workers to sell 11.3 million vehicles, about 28 vehicles per employee. The Detroit Three have sales-to-staff ratios in the mid-20s.

Roughly 43% of Volkswagen’s staff were in Germany at the end of 2025, compared with around 17% of Toyota’s in Japan, according to the Journal.

Volkswagen’s corporate structure, with 1,500 entities and 12 core brands, adds another layer of cost and complexity. The company has never integrated the brands it bought. Even Audi, controlled by Volkswagen since 1965 and wholly owned since 2020, maintains its own management board, 20-person supervisory board and the trappings of an independent company.

The company’s software unit Cariad delayed the launch of key vehicles, including a new all-electric Porsche Macan, which reached dealerships in 2024 when enthusiasm for electric vehicles was already waning. Porsche wrote down billions of dollars’ worth of EV investments last year, according to the report.

Volkswagen has now shrunk Cariad and transferred its critical functions to a new joint venture with American EV maker Rivian. The move to give Rivian effective responsibility for a key technology marked a shift for Volkswagen, which has historically done more in-house than its peers.

The company still makes more components than its competitors, one reason it has more employees for each car it sells. In its hometown of Wolfsburg, Volkswagen makes its own sausages for the staff canteen and owns the local soccer club, which was recently relegated from Germany’s top soccer league.

A new battery plant in Salzgitter sits next to an engine plant in a deliberate experiment in shifting the company’s industrial footprint from old technology to new. The battery plant was expected to employ 2,500 staff, only a third of the engine plant’s workforce in 2023.

Volkswagen has taken steps to invest more overseas. Product-development jobs have moved from Wolfsburg to China. The company is also investing billions of dollars in the U.S. to revive the All-American SUV brand Scout Motors.

Last month, Volkswagen agreed to sell a 51% stake in its marine-engine business, Everllence, for proceeds of about $8.4 billion. The deal ruled out compulsory redundancies and site closures in Germany at least until the end of 2030.

“The cost reductions planned to date under the agreed programs are not sufficient in the current economic and geopolitical environment,” Antlitz said.