Volkswagen’s surprise turnaround deal averts showdown as job cuts loom

FRANKFURT/BERLIN, Sept 4 (Reuters) - Volkswagen shares scaled an 11-week high after the supervisory board of Europe's largest automaker agreed late on Thursday to an ambitious turnaround plan that centers on extensive job cuts and headed off a showdown among key stakeholders.

The pact, marking the most sweeping restructuring in Volkswagen's 89-year history, includes an additional 50,000 job reductions, pushing the overall agreed total to 100,000, and leaves unresolved the fate of four German factories.

Volkswagen, like most of its European contemporaries, is contending with punishing U.S. tariffs, shrinking sales in what was once a reliable profit engine, China, and determined Asian rivals entering Europe's lackluster market. These headwinds have steadily diminished the group's operating margin, which fell to 3.8% in the first half from 7.9% in 2022, its highest point in the past decade.

Shareholders and analysts voiced relief that Volkswagen—a company with over 650,000 employees, a convoluted structure, and powerful stakeholder factions—can still make decisive choices in a crisis.

Volkswagen shares were up 5.9% at 1046 GMT, making it the second-largest gainer on the pan-European STOXX 600 index, after touching their highest point since June 18 earlier in the session.

Ingo Speich, a Volkswagen shareholder and executive at Deka Investment, termed the agreement a breakthrough but cautioned: "Does this mean Volkswagen is out of the woods? Definitely not. Now comes the hard part: execution."

Moritz Kronenberger, who follows the stock at Union Investment, welcomed the pact but made clear management must now prove itself: "The ball is now entirely in the executive board's court. There are no more excuses."

Management, which is outnumbered on the supervisory board by labor representatives and Lower Saxony, had contemplated calling an extraordinary shareholder meeting to push through its agenda—a step that would have produced an unprecedented conflict among the company's stakeholders.

While the agreement gave no specifics about the location or timing of the cuts, Volkswagen CEO Oliver Blume has said half of the savings would need to come from Germany, implying that around 25,000 positions could be eliminated at domestic sites.

The details of the job-cut programme will have to be worked out between management and unions, which as part of a 2024 restructuring accord secured a guarantee protecting most of Volkswagen's German workforce from layoffs until 2030.

Citi analysts wrote: "We are pleased this agreement has been achieved. Nevertheless, this agreement does not automatically change the EU competitive environment, continued China market-share losses, and raw material cost pressures."

For its German plants in Emden, Hanover, Zwickau and Neckarsulm, Volkswagen plans to look for alternative uses once production there is phased out over the next decade, a process that may involve a variety of outcomes, such as redesigning the facilities under new owners, according to people familiar with the matter.

Olaf Lies, premier of Lower Saxony, which holds a 20% stake in Volkswagen's voting shares, said plant closures are not unavoidable, adding that management has been instructed to examine alternative options.

Speaking to reporters, Lies argued that even if capacity reduction is necessary, it does not automatically mean Germany should bear the brunt, while acknowledging that Europe's auto sector remains under huge strain.