VW Restructuring Talks Produce Union Win, But Share Price Unfazed

History suggests there never was a realistic chance Volkswagen’s radical restructuring plan would succeed in watering down its counter-productive, politicized corporate structure, although signs of a huge existential crisis on the horizon may still bring about that change.

Volkswagen wanted to close three German factories to address efficiency shortfalls as Europe’s biggest automaker faced weaker markets at home and in China, floundering electric vehicle sales and lagging profitability at its own VW brand.

After negotiations ending just before the holiday break union leaders declared the talks a “Christmas miracle” because there will be no immediate factory closures, layoffs or wage cuts. That implies victory for the unions and failure for Volkswagen’s attempt to rationalize its sprawling empire and finally turn the company into a shareholder-friendly not worker-centric organization.

That will be no surprise to long-term Volkswagen observers. In Germany, union power is incorporated into corporate governance. This is particularly strong at Volkswagen, where unions have half the seats on the supervisory board and with the help of politicians in its home state and shareholder Lower Saxony, a virtual veto on company policy. Over the decades many investors have kept away from Volkswagen because it was seen as a corporation existing more for workers than shareholders.

VW’s recent share price performance suggested that investors might be feeling constructive about the negotiations’ outcome. In November, the shares were languishing at a low for the year at around €82, a 45% drop from a high in April of €151. As the talks with the unions became more intense, the share price gradually edged higher to just over €90 and stayed around there to close Friday at €91.30.

Volkswagen announced eventually more than 35,000 job cuts and a capacity reduction of more than 700,000 vehicles. VW agreed to keep 10 German factories running and retain job security until 2030 and planned to make €15 billion ($15.6 billion) in efficiency gains. Production of the Golf hatchback will move to Mexico, and EV capacity will be reduced at its Zwickau plant and moved to Wolfsburg and Emden.

Initial investor reaction though was largely negative, with pleas for more details.

Investment researcher Jefferies described the deal as requiring more details and missing a sense of urgency to match the pace of change in the industry.

“We need to hear more details on how management intends to achieve €15 billion of annual cost reduction at VW Germany mid-term, of which €4 billion ($4.2 billion) coming from the current agreement,” Jefferies said in a report.

“The precise planned 734,000-unit reduction in capacity suggests a heavy focus on plant compacting over closing, a strategy which can reduce costs but also result in maintaining an excess number of sub-scale facilities,” Jefferies said.

Bernstein Research wasn’t impressed either, saying the deal fell short of VW’s attempt to shut factories and fire workers. The job cuts will be achieved by early retirement and natural attrition.

“Judging by data from the VW Works Council, overall wage levels in 2026 will be between 4-7% lower than if nothing had happened vs management’s goal to reduce these by between 16-19%. We need to treat this undoubtedly partisan data with some circumspection, but management does appear to have fallen short of its cost reduction ambitions,” Bernstein said in a report.

More details required

“We feel that the market will want to better understand these claimed savings in light of previous failures to move the cost and performance needle in Germany,” Bernstein said.

Frank Schwope, automotive industry lecturer at the University of Applied Sciences FHM Hannover felt the unions emerged as winners.

“From the employees’ point of view, the agreement appears to be a success, even though we do not know all the details,” Schwope said in an email.

Jefferies pointed out that at least the agreement might have staved off more industrial action.

“A near-term benefit from the Agreement should be to avoid potentially crippling strikes in January,” Jefferies said.