The casual observer might interpret the agreement on September 3rd between Volkswagen’s management and trade unions as Mitbestimmung (co-determination) in action. In fact, far from epitomising the long-standing German model of harmonious accord between bosses and employees, the unexpected deal, which involves the loss of 50,000 jobs, may signal the beginning of its end. The carmaker’s powerful unions and employees’ representatives agreed to it only when the bosses threatened to bypass the system altogether.
The casual observer might interpret the agreement on September 3rd between Volkswagen’s management and trade unions as Mitbestimmung (co-determination) in action. (unsplash)
Workers hold a strong hand on VW’s 20-strong supervisory board, which is empowered to approve strategic action. Their representatives hold ten seats. Another two are occupied by VW’s home state of Lower Saxony. The state has a 20% voting stake in the firm and—under the Volkswagen Act, a law passed in 1960—can veto decisions of which it disapproves. Both have been determined to preserve jobs in Germany. In recent years management has been determined to cut them and the exorbitant costs they entail.
Approval of “Future Plan 2030” opens the way for factory closures in Germany. The job cuts are on top of the same number culled under a deal struck in 2024. The latest pact was secured only after it appeared that VW’s bosses had threatened to circumvent the supervisory board and appeal directly to shareholders—a nuclear option to which they had never before resorted. A rumour that VW was considering phasing out its SEAT brand may have added to the pressure.
Trashing co-determination, of which VW has long been considered the exemplar, is a measure of managers’ desperation. In past decades, when the German firm vied with Toyota for leadership of the global car industry, profitability came a poor second in importance to scale. And when other European carmakers shifted production to lower-cost countries in eastern Europe, unions hindered VW’s ability to do the same. They are said to have insisted that every job created abroad be matched by one in Germany.
VW’s over-reliance on costly German workers and factories became first a problem and then a crisis. Since 2019 annual sales have slipped by 2m vehicles, to around 9m in 2025, as competition from Chinese carmakers has swiftly intensified both in China and abroad. Herbert Diess, VW’s previous boss, an outsider employed in part to take on the unions and cut costs, made little impression. Oliver Blume, an insider who took over in September 2022, was expected to make even less progress.
Now Mr Blume seems to have pulled off the biggest achievement of his career. The agreement appears to close what Bernstein, a broker, had said looked like an “unbridgeable gap” between management and workers. The most contentious part involves closing four factories in Germany between 2031 and 2034 to reduce annual capacity by 500,000 units (or finding alternative uses for the plants, which seems unlikely). VW will also narrow and simplify its line-up of vehicles and cut capital investment and its research-and-development budget by even more than previously planned.
Mr Blume has thus won VW time to turn itself around. Investors seem to agree: VW’s share price surged early on September 4th. But it is time that he must make the most of. VW has a target of 9% for its operating margin in 2030, compared with less than 4% now, and still has plenty of problems to surmount if it is to come close.
Although its electric vehicles (EVs) are improving, its earlier forays were hardly met with widespread acclaim. Big investments in in-house software development have yielded little; VW now relies on Rivian, an American startup, and Xpeng, a Chinese one, for such technology. Plans for the sort of software-defined vehicle platform common among Chinese firms are years behind schedule. That is one reason why VW’s sales in China are still sliding. EVs make up only a small fraction of its business in the country, even though electrified cars account for around three-fifths of the market.
A bigger worry may be whether VW’s unions are genuinely committed to change. Already Daniela Cavallo, the chief of VW’s works council (which represents employees), has said: “We’ve given up on no plant and, contrary to media reports, no plant closure has been approved.” In December 2024 VW backed down from a plan to close three German factories after workers went on strike.
Even so, in threatening to circumvent the supervisory board, Mr Blume has found a powerful weapon with which to force concessions. This may be the start of a new era at VW. It could be one of greater co-operation between bosses and workers—or of further industrial strife.
