Volkswagen Group Restructuring: How Europe's Largest Automaker Is Cutting 35,000 Jobs to Survive

The agreement reached between Volkswagen Group management and the IG Metall trade union in late 2024 resolved a months-long confrontation that had threatened strike action at the company's German plants and exposed the depth of the crisis facing Europe's largest automaker. The deal — 35,000 job reductions through voluntary departures, early retirement programs, and natural attrition, paired with €4 billion in annual cost savings — was simultaneously a labor relations victory and an acknowledgment of structural failure at a company that had defined German industrial identity for seven decades.

VW's problems are not unique to the company. They reflect a collision of forces reshaping the entire European automotive industry: the BYD-led Chinese EV invasion, slowing European car demand, the cost of the EV transition, and a legacy cost structure built for a market that no longer exists.

## How VW Got Here

For most of the 2010s, Volkswagen Group was the world's largest automaker by revenue and among the most profitable. The group's brand portfolio — VW, Audi, Porsche, SEAT, SKODA, Lamborghini, Bentley, and commercial vehicles — generated economies of scale unmatched in the industry. The MQB modular platform, introduced in 2012, enabled VW to share components across models spanning from the Polo to the Audi Q7, compressing manufacturing costs dramatically.

The 2015 Dieselgate scandal — the revelation that VW had programmed diesel engines to cheat emissions tests — cost the company over €30 billion in fines, legal settlements, and vehicle buybacks. More significantly, it forced a strategic pivot: rather than defend diesel, VW's leadership committed to an accelerated EV transition under the "Way to Zero" strategy. The ID. family of electric vehicles was launched as VW's EV platform, with ambitious targets for production volume and cost competitiveness.

The ID.3 and ID.4 have sold in moderate volume but have not achieved the market penetration their development costs justified. The vehicles carry higher base prices than equivalent Chinese EVs and have suffered from software quality issues — VW's proprietary software system was years behind schedule and required multiple expensive recalls. By 2023, VW's software subsidiary CARIAD, created to develop the in-house OS, had consumed over €3 billion and delivered software that remained significantly behind Tesla and Chinese competitors in capability and stability.

## The Chinese Competition Problem

China has accounted for approximately 35–40 percent of VW Group's global sales volume for most of the past decade, with the joint ventures with SAIC and FAW generating a significant portion of group profits. This market position is deteriorating rapidly. BYD, SAIC's own EV brands, and emerging competitors like Li Auto, Nio, and Xpeng are collectively displacing foreign brands across the Chinese market with products that combine lower pricing, competitive range, and feature sets (particularly in-car technology and driver assistance) that match or exceed European equivalents.

VW's Chinese sales declined approximately 10 percent in 2023 and a further 8 percent in 2024. The joint ventures' profitability has fallen commensurately. For a company structure in which Chinese profits effectively cross-subsidized European operations, this compression has direct consequences for the group's ability to fund the EV transition in Europe.

The European market has provided limited offset. European EV demand growth slowed significantly in 2023–2024 as early adopters were satisfied and the remaining market showed stronger resistance to switching from internal combustion vehicles. VW's German plants, designed for volumes of 800,000 to 1 million vehicles per year, were running at 60–70 percent capacity.

## The Restructuring Plan

The 2024 labor agreement centers on headcount reduction without compulsory redundancies — a crucial provision for IG Metall and a structural constraint on the speed of reduction. The 35,000 positions will be eliminated over a multi-year period through:

- Voluntary early retirement packages for workers over 57
- An end to temporary worker contract renewals
- Restrictions on new hiring
- A "partial retirement" bridge scheme for workers approaching pension age

The agreement also includes temporary salary adjustments and waives inflation-linked pay increases for 2024 and 2025, saving approximately €1.5 billion annually. Factory closures, which VW management had initially proposed and IG Metall had categorically rejected, were avoided — German codetermination law gives worker representatives seats on the supervisory board and makes plant closures politically and procedurally difficult.

Four specific German plants were identified as running at insufficient capacity: Osnabrück (sports cars, low volume), Dresden (ID.3, now discontinued there), Emden (EVs, underutilized), and Zwickau (full EV conversion, underperforming volumes). These plants will not close but will operate with reduced workforces and revised product assignments.

## Technology Strategy Post-Restructuring

VW's technology strategy has undergone significant revision. The CARIAD software division has been restructured, with development partnerships expanded: Rivian received a $5 billion investment in return for joint software development on vehicle platforms; Chinese technology companies including Xpeng have provided licensed software for Chinese-market vehicles. The abandonment of pure in-house software development acknowledges the company's inability to build competitive software capability on its own timeline.

The SSP (Scalable Systems Platform) — VW's next-generation EV architecture, intended to underpin vehicles from 2026 onward — has been delayed and descoped. Rather than a full-group platform replacing MEB and PPE simultaneously, SSP will enter production in phases, with the first SSP-based vehicles now targeted for 2028.

The strategic bet is that VW's manufacturing scale, its European market position, and sufficient cost reduction will provide a viable competitive position even in a market where Chinese manufacturers hold cost and technology advantages in EVs. It is a bet on execution rather than innovation — and execution, at VW's scale and complexity, is harder than it sounds.

Volkswagen Group Restructuring: How Europe's Largest Automaker Is Cutting 35,000 Jobs to Survive

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