Volkswagen shares jumped to their highest level in 11 weeks on Friday, after the supervisory board of Europe's largest carmaker struck a sweeping restructuring agreement late on Thursday night, prioritizing deep job cuts and averting a clash between the company's most powerful stakeholders, including labor unions and the German state of Lower Saxony.
The agreement, hailed as the biggest restructuring in the group's 89-year history, adds another 50,000 job cuts on top of reductions already agreed, bringing the total number of job cuts under the plan to 100,000. It leaves the future of four Volkswagen factories in Germany undecided.
Pressure from tariffs and Chinese competition
Volkswagen, like most of its European competitors, is under pressure from steep tariffs imposed by the United States, falling sales in China, once its most important source of revenue, and an aggressive push by Asian rivals into a stagnant European market.
The tariffs stem from trade measures the United States has placed on imported vehicles, raising costs for European carmakers trying to sell into one of the industry's largest markets.
China has for years been the world's biggest car market and a major profit center for foreign brands, but domestic manufacturers there have rapidly gained ground, squeezing out international competitors including Volkswagen.
The strain is not confined to Volkswagen. BMW announced plans this year to cut 8,000 jobs in Germany by the end of 2027, and Germany's chancellor has said solutions to Volkswagen's troubles are vital for the country's wider industrial base, calling for joint efforts to resolve the crisis.
These pressures have eaten into Volkswagen's profitability. The group's operating margin fell to 3.8% in the first half of the year, down from 7.9% in 2022, its peak over the past decade.
Operating margin measures how much profit a company keeps from its core business after costs, expressed as a share of revenue. A shrinking margin means costs are rising faster than income even as sales continue.
Volkswagen Group is Europe's largest carmaker by sales and employs more than 650,000 people worldwide. Its brands include Audi, Porsche, Skoda and Seat alongside the core Volkswagen marque, and the company, founded in 1937, is headquartered in Wolfsburg, Germany.
Shares surge on relief
At 10:46 GMT, Volkswagen shares were up 5.9%, the second-biggest gain on the pan-European STOXX 600 index, which tracks 600 of the largest listed companies across Europe. The stock had earlier touched its highest price since June 18.
Shareholders and analysts expressed relief that Volkswagen, with its enormous workforce, complex ownership structure and powerful stakeholder groups, was still able to make far-reaching decisions in the middle of a crisis.
Ingo Speich of Deka Investment, a Volkswagen shareholder, called the agreement a step forward. He asked whether it meant Volkswagen was out of danger, and answered that it definitely did not, adding that the hard part now was execution.
Moritz Kronenberger of Union Investment also welcomed the deal but said the pressure now shifted squarely to management to deliver results. He said responsibility now rested entirely with the executive board and that there were no more excuses.
An unprecedented standoff avoided
Volkswagen's management is outnumbered by unions and representatives of Lower Saxony on the supervisory board. It had considered calling a shareholder meeting to push through its demands, a move that would have triggered an unprecedented conflict between stakeholders at the automaker.
Lower Saxony holds around 20% of Volkswagen's voting rights, a stake that dates back to the so-called Volkswagen Law, legislation that has long given the state government significant influence over major decisions at the company.
Although the agreement did not specify where or when the cuts would take place, Volkswagen chief executive Oliver Blume had previously said that half of the savings would have to come from Germany, implying around 25,000 job cuts in the company's domestic operations.
The details of the job-cut program will still need to be negotiated between management and the unions, which secured job guarantees for most of Volkswagen's German operations until 2030 as part of an earlier restructuring package agreed in 2024.
Analysts remain cautious
Analysts at Citi said they were pleased the agreement had been reached. However, they noted it did not automatically change the competitive environment in the European Union, the continuing loss of market share in China, or pressure on raw material costs.
Fate of four German plants
Volkswagen will look for alternatives for its German factories in Emden, Hanover, Zwickau and Neckarsulm once production there is discontinued over the next decade, according to people familiar with the matter. The options under consideration reportedly include finding new operators to take over the plants under different management.
Olaf Lies, prime minister of the state of Lower Saxony, said the closure of the plants was not final and that management had been asked to seek alternative solutions.
He told reporters that if production capacity had to be reduced, it should not automatically follow that the reduction would take place in Germany. He acknowledged, however, that Europe's automotive industry was under enormous pressure.
