Volkswagen considers German factory closures

German car maker Volkswagen could close production sites in Germany as the automotive industry is struggling with a rise in costs. “In the current situation, even plant closures at vehicle production and component sites can no longer be ruled out,” the firm said in an internal memo sent to employees and seen by AFP.

The largest car maker in Europe, Volkswagen says Germany as a “business location” is something it remains committed to. But “headwinds have become significantly stronger” according to VW brand CEO Thomas Schaefer who was quoted in the memo.

The challenging situation means that the company must “now step up” its efforts to secure long-term success, Schaefer also said in the note to employees. “We want to remain the leading volume manufacturer worldwide –- and do so on our own strength,” Schaefer said.

Volkswagen announced last year that it plans a €10 billion savings program. Cuts to its workforce have been flagged over the coming years as the company hopes to improve profitability.

But further measures, its aid, would now be needed following disappointing results in August and a dip in profits. Rising costs and a drop in demand from China have also forced Volkswagen to lower its profit margin forecasts for the remainder of the year.

Now, according to the memo, the core of the Volkswagen group “faces particularly significant challenges.” Despite the announcement of these measures, “the current developments in the automotive market and the German economy demand further action,” it also said.

“Comprehensive restructuring” has also been determined by the board as something that brands within Volkswagen AG, including SEAT and Skoda, must undergo.

“The goal must be to optimise product costs, material costs, and sales performance, as well as factory and labour costs,” the memo said, suggesting the possibility of plant closures. “Simple cost-cutting measures” would no longer be enough and job cuts, according to the memo, are not off the table.