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Volkswagen (VWAGY-1.24%) has reported a 42% drop in operating profit for the July to September quarter, and its worst operating margin since the COVID-19 pandemic forced it to halt production.
The German automaker’s operating profit dropped to 2.86 billion euros ($3.1 billion) last quarter, while revenue fell slightly to 78.5 billion euros ($84.6 billion). Volkswagen’s operating margin declined to 3.6%, which is the lowest in about four years.
The poor performance comes as Volkswagen looks to close three plants in Germany and issue mass layoffs as soon as next June. Volkswagen employs roughly 300,00 people in Germany, including tens of thousands spread across its headquarters and ten factories.
Volkswagen has never closed a plant in its native country before. The last time it closed any factory was in 1988, when it shut down its location in Pennsylvania’s Westmoreland County. In July, it weighed closing an Audi factory in Brussels, as demand for high-end electric cars sank.
The cuts are part of the automaker’s attempt to further its its $11 billion cost-cutting plan, and as it faces tough competition from foreign automakers entering the European market. “The pie has become smaller, and we have more guests at the table,” CEO Oliver Blume told Bild last month, noting that Chinese automakers are making a forceful entrance.
Volkswagen’s finance chief, Arno Antlitz, told workers last month that the company hasn’t been able to rebound since the pandemic and that it’s facing a demand shortfall of about 500,000 cars — or the equivalent of two plants. Sales fell by 8.5% last quarter.
The automaker has canceled a decades-long job security agreement, along with other labor deals, as it negotiates for a new contract with union leaders.
Volkswagen is demanding a 10% pay cut and no pay raises for the next two years, a stark contrast to the 7% pay increase asked for by the IG Metall union. The group has threatened strikes, which are possible from Dec. 1.
“And I say quite clearly that Volkswagen has opened Pandora’s box by terminating job security and other collective agreements, has jeopardized the trust of its employees and it is now up to Volkswagen to restore this trust,” IG Metall union negotiator Thorsten Groeger told Reuters.