Volkswagen's Cost-Cutting Is Backfiring Badly

Industry News

VW is being accused of breaching its cost-cutting agreements. Sigh.

As part of Volkswagen’s recovery strategy from Dieselgate, the German manufacturer has had to implement some drastic cost cutting measures to pay for its crimes. Consequently, this resulted in some 30,000 job losses, which was initially said to be instrumental to VW’s recovery. However, Reuters reports that labor leaders are accusing Volkswagen’s top executives of cutting jobs too rapidly, which could jeopardize the company even further.

A letter sent by labor leaders to VW brand chief Herbert Diess claims that both him and personnel boss Karlheinz Blessing had breached the terms of November’s “future pact” by ruling out potential hirings in the first half of 2017 and axing temporary jobs faster than what was agreed. "The management board with its actions is undermining the terms of the future pact," the labor leaders said in the letter. Problem is, VW is under a lot of pressure to make significant cuts in order to fund its shift to electric cars in an effort to rebrand itself after the notorious emissions scandal. That, and it still has billions of dollars’ worth of settlements to pay off.

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Reuters understands that managers and labor leaders agreed to cut 30,000 jobs at VW to avoid forced redundancies in Germany until 2025, which isn’t helping its profitability. However, labor leaders may now pressure executives to stick to the agreement by halting cooperation with management on issues such as overtime, reducing apprenticeships and extension of weekly hours for engineers, according to the letter. "The ink on the contracts was hardly dry, and brand management blatantly infringed on the agreements and the spirit of the future pact," a works council spokesman said. Clearly, it’s going to be a long road to recovery for VW. You can only imagine the tension among the workforce right now.

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