Volkswagen is heading into one of the most difficult periods in its history, with CEO Oliver Blume warning that the company’s situation is “more than critical” and that its current level of profitability is no longer enough to support future technologies, new products and its sprawling manufacturing network.
Europe’s largest automaker is being squeezed from several directions at once. Chinese brands are expanding aggressively in Europe, profits in China have weakened, US import tariffs are adding pressure, and Volkswagen is still carrying more production capacity than it needs across Europe.
Blume says Volkswagen and the wider German car industry are facing one of the biggest transformations they have ever seen. Even with operating margins of less than 4%, the group is still profitable, but not profitable enough to fund the investments required for the years ahead.
Cutting Costs And Simplifying The Business
A major part of the problem is Volkswagen’s cost base. According to Blume, overhead costs remain more than 30% higher than those of comparable rivals, leaving the company with little choice but to push through deeper savings.
The restructuring is expected to touch almost every part of the business. Volkswagen has already approved plans to gradually cut its model lineup by as much as 50%, with more attention going to the segments that offer stronger returns.
The company also wants to reduce the complexity of its cars by cutting the number of available configurations and equipment combinations by as much as 75%. The idea is straightforward: fewer variations should mean simpler production, lower costs and more efficient factories.
Manufacturing capacity is also being reduced. Volkswagen plans to lower annual capacity from around 10 million vehicles to roughly 9 million as it tries to bring production closer to actual demand. The group is estimated to have excess capacity in Europe equivalent to around 500,000 vehicles a year.
The imbalance is especially visible in Germany. Volkswagen Group plants there are expected to run at around 81% of standard capacity in 2026, with that figure potentially falling to about 73% by the end of the decade.
Several plants appear particularly vulnerable. Blume has said factories in Emden, Hannover, Zwickau and Neckarsulm are not expected to reach competitive capacity utilization levels during the 2030s. No final closure decisions have been made, and Blume has described shutting plants as a last resort and one of the most expensive solutions available.
Zwickau stands out as one of the clearest examples of the problem. Its capacity utilization is expected to fall from around 88% in 2026 to roughly 42% by 2030, underlining just how serious Volkswagen’s overcapacity has become.
The company is also looking at alternative industrial uses for sites where vehicle production could eventually be reduced or stopped. Volkswagen has previously discussed possible future uses for its Osnabrück plant with companies from the defense sector.
Jobs, Unions And A Tougher Fight Ahead
The workforce is another major part of the restructuring. Volkswagen has already planned around 50,000 job cuts, with agreements reportedly reached with roughly 37,000 employees so far. Reuters has also reported that further reductions could eventually increase the total by another 50,000 positions.
Blume has stressed that the additional 50,000 figure is not a fixed target. Instead, he says it reflects the scale of savings Volkswagen may need if it wants to bring its costs closer to those of its competitors.
Any deeper cuts are likely to face strong resistance. IG Metall and Volkswagen’s powerful works council have opposed large scale plant closures and further layoffs, while workers have already started protesting against the restructuring plans.
Around 400 employees reportedly demonstrated in Wolfsburg, with union representatives warning that more aggressive cuts could trigger a serious confrontation between management and the workforce.
That leaves Volkswagen with a difficult balancing act. It needs to lower costs, simplify its operations and tackle excess production capacity, while at the same time continuing to invest heavily in electric vehicles, software and future technologies. It also has to do all of that without losing the support of workers or damaging the industrial base that has defined the company for decades.
The financial pressure makes the situation even more urgent. Rising labor and energy costs in Germany, stronger Chinese competition, tougher regulation and US tariffs have all weighed on the business. Volkswagen’s profit margins were reportedly cut roughly in half between 2021 and 2025, while the company’s shares have lost more than half their value over the past three years.
Volkswagen’s supervisory board is expected to continue discussing the restructuring strategy at a meeting on September 4. Blume, meanwhile, is visiting several plants that could be affected by the turnaround plan as the company prepares for crucial talks over its future.
Some progress has already been made, but Blume’s message is clear: Volkswagen believes the pressure is only going to increase. Rather than betting on an easier global environment, the company is preparing for tougher competition, higher risks and a far more demanding automotive market in the years ahead.
