(Bloomberg) -- Volkswagen AG has begun to trim corporate jobs in China as it works to reduce overhead by a target of 20% globally over the next three years.
The cuts amount to several hundred local staff at the group level, according to people familiar with the matter, as Volkswagen contends with a stubborn decline in sales in its largest market. The company’s premium Audi brand is separately reducing headcount, the people said, asking not to be identified because the information isn’t public.
The moves are part of a worldwide effort to lower costs through 2026 that Volkswagen reiterated in August, the company said in response to questions from Bloomberg News, declining to quantify the layoffs.
Volkswagen Group China will “make a significant contribution to this,” the company said in an email. Optimization efforts “may also include direct and indirect personnel costs” such as administration, travel and training, the company said, adding that it’s premature to give a number because the effort is ongoing.
A consumer slump in China, coupled with the market’s rapid shift toward electric vehicles, has turned the former stronghold for Volkswagen into a weak spot. In August, the company blamed a second-quarter decline in operating margin partly on the slowdown in China. Deliveries on the mainland dropped 7.4% in the first half amid stiff competition from local manufacturers like BYD Co., and were down 24% last year from 2019 levels.
At its German home base, Volkswagen is also considering factory closures for the first time, in an environment that has “become even tougher” with new players pushing into Europe, said Chief Executive Officer Oliver Blume.
The local cutbacks are being led by China head Ralf Brandstaetter and will take place in stages, the people said. Beijing’s recent move to raise the country’s retirement age spurred Volkswagen to reassess its personnel levels and accelerate its job-cutting plans, they said.
Some workers were informed of the plan earlier this week, the people said. Some expatriate employees are being sent back to Germany and some mid-to-high-level managers are being dismissed, they said.
China Overhaul
The corporate overhaul includes a structural reorganization, digitizing processes, streamlining operations and localizing some tasks, the company said.
“A significant part of the efficiency target has already been identified in recent months,” VW China said. “Further measures are currently under review.”
Volkswagen’s premium Audi brand, which has more than 700 employees, will be hard hit by the efficiency drive, the people said. Foreign luxury brands have been hit hard by a slump in Chinese auto sales and the simultaneous shift toward EVs. Mercedes-Benz Group AG issued a profit warning on Friday amid a deepening slowdown in the world’s largest automotive market.
Volkswagen China makes up only a small portion of the company’s 90,000 staff in China, most of which are employed by its joint venture. Bloomberg News reported this week that VW and its oldest partner, SAIC Motor Corp., are separately preparing to close at least one plant as demand ebbs for combustion-engine vehicles.
The company’s share of operating earnings from its Chinese ventures fell 20% in 2023 to €2.62 billion ($2.92 billion), and has declined by about half since 2015.
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