Volkswagen is cancelling a no-layoffs pledge and won't rule out closing plants in Germany

Volkswagen has warned that due to challenges facing the auto industry, it may be forced to close plants in Germany and abandon a long-standing job protection agreement that has been in place since 1994, which would have prevented layoffs through 2029.

"The European automotive industry is in a very demanding and serious situation," said Volkswagen Group CEO Oliver Blume in a statement on Monday. He pointed to the influx of new competitors in European markets, the declining status of Germany as a manufacturing hub, and the need to "act decisively."

Thomas Schaefer, CEO of Volkswagen Passenger Cars, noted that while cost-cutting efforts have shown some progress, "the headwinds have become significantly stronger."

European carmakers are increasingly feeling the pressure from cheaper Chinese electric vehicles entering the market.

Volkswagen's half-year results suggest the company will miss its cost-saving target of 10 billion euros (around $15 billion CAD) by 2026. The conversation about potential plant closures and layoffs concerns the company's core Volkswagen brand, which saw operating profits fall to 966 million euros ($1.4 billion CAD) from 1.64 billion euros ($2.45 billion CAD) the previous year.

Volkswagen Group, which also includes luxury brands Audi and Porsche, as well as SEAT and Skoda, has tried to cut costs through early retirements and buyouts to avoid mandatory layoffs, but is now indicating that these measures might not be sufficient.

Any additional actions involving plant closures or job security guarantees would need to be negotiated with worker representatives. The last plant closure for the company occurred in 1988, when Volkswagen shut down its U.S. plant in Westmoreland, Pennsylvania, according to dpa news agency.