Volkswagen is considering closing its first plant in Germany to cut costs

Volkswagen AG is considering record factory closures in Germany in a bid to push for deeper cuts, dealing another blow to Chancellor Olaf Scholz's government.

The possible measures, targeting its main passenger car brand as well as other group operations, also include seeking to end the company's pact with unions to keep jobs secure until 2029, the company said on Monday.

Any closure would mark the first in Germany during the company's 87-year history, setting VW up for a showdown with powerful unions.

“The economic environment has become even more difficult and new players are entering Europe,” VW Chief Executive Oliver Blume said in a statement. “Germany as a business location is increasingly falling behind in terms of competitiveness.”

A full-blown labor dispute would be a major test for the chief executive, who also runs the Porsche sports car brand, after union clashes brought down several of his predecessors at VW. The company has struggled to cut costs at its namesake passenger brand, where profit margins have long lagged, and efforts have been made more difficult amid a faltering transition to electric vehicles and a slowdown in consumer spending.

Works council head Daniela Cavallo said VW's management had failed after meetings revealed that the company's core brand, which makes the Golf and Tiguan models, was threatening to become a loss-making brand, according to a separate statement. The company is planning to close at least one larger car factory and a component plant in Germany, she said, as well as abolishing wage agreements.

VW employs around 650,000 people worldwide, of whom almost 300,000 are in Germany. Half of the company's board seats are held by employee representatives and the German state of Lower Saxony, which holds a 20% stake, is often aligned with the unions.

Previous clashes ended or shortened the tenures of top executives, including former CEO Bernd Pischetsrieder, former VW brand chief Wolfgang Bernhard and, most notably, Herbert Diess, Blume's predecessor as CEO. All three sought to push for efficiency improvements, especially at VW's German operations in the country.