VW Has a Genius Plan To Keep Plants Open: Pay Employees Less

Volkswagen Group has proposed cutting wages by 10 percent. Plant closures remain a possibility if the automaker and union can't agree on cutting costs.  The automaker also wants to restructure the employee bonus system.

Things have been pretty grim at Volkswagen Group for the last few months. Declining demand, rising costs, and increased competition are hurting the automaker's bottom line, and it's taking drastic action to cut costs. There have been rumors that VW could close plants in Germany for the first time since its founding, but that's off the table for now as the automaker asks its union to take a 10 percent pay cut.

The wage reduction is part of a package of changes VW Group has proposed after the union asked for a seven percent raise. The automaker also told the union it wants to restructure the employee bonus system and eliminate the anniversary and monthly bonuses. But this is just the first step. Plant closures remain a possibility if negotiations fail to achieve the needed savings.

"Successful operations are a prerequisite for job security," said Arne Meiswinkel, chief negotiator for Volkswagen, in a statement. "But for this we need to reduce our labor costs."

VW's demands arrived after the automaker reported an abysmal third-quarter operating profit. They fell 42 percent, with the Volkswagen brand's sub-par performance hurting the most. The brand only reported a two percent operating margin through September, which "highlights the urgent need for significant cost reductions and efficiency gains," according to VW Group CFO and COO Arno Antiltz.

There had been rumors that VW could close at least three factories in its home country. According to VW brand CEO Thomas Schafer, the plants aren't operating efficiently enough, which it "cannot be overcome by simple cost-cutting measures."

Negotiations between VW Group and its union, IG Metall, resume on November 21.