Volkswagen's 100,000 Layoffs and the Restructuring of the European Automotive Industry: Background and Response Strategies for Korean Companies

Executive Summary

On September 3, 2026, Volkswagen's Supervisory Board agreed to a plan to lay off a total of 100,000 employees. This is the result of three concurrent pressures: tariffs, the retreat from the Chinese market, and the rise of Asian competitors. Local media outlets such as NZZ assess that this agreement fails to fundamentally resolve the problem of overcapacity. As native European firms lay off workers, Chinese automakers are exploring securing production bases in countries like Austria, raising the possibility of a shift in supply chain dominance. Korean companies must defend their existing supply chain positions while simultaneously exploring ways to preemptively enter regions where Chinese capital is expanding, ensuring these strategies do not conflict with EU trade regulations.

I. Analysis of the Current Situation

Volkswagen's Plan for 100,000 Layoffs and the Restructuring of the European Automotive Industry: A Local Diagnosis

1. Background and Developments

On September 3, 2026, Volkswagen's Supervisory Board unanimously approved the 'Future Plan 2030' (Plan de Futuro 2030)[1]. This decision confirmed an additional 50,000 layoffs[1][5]. Combined with the 50,000 layoffs already agreed upon at the end of 2024, the total reduction in workforce reaches 100,000[5][17]. The fate of four plants in Germany has not yet been decided[1][13].

The negotiations were not smooth. Since last July, labor and management had been clashing over the scale of layoffs, the separation of business units, and plant closures[16]. On August 31 in Dresden, Germany's largest trade union, IG Metall, warned of "maximum resistance" to the company's attempt to break a previous agreement[16]. However, it did not explicitly threaten a strike[16]. Volkswagen's management reportedly considered calling an extraordinary shareholders' meeting to push the agenda through despite opposition from the union and the state of Lower Saxony (Volkswagen's second-largest shareholder)[13]. Ultimately, this scenario was set aside, and the two sides reached an agreement more quickly than expected[13][5].

Switzerland's Neue Zürcher Zeitung (NZZ) assessed that with this agreement, the Supervisory Board had "avoided a difficult decision"[12]. The paper pointed out that Volkswagen, Europe's largest automaker, still faces the problem of overcapacity[12]. The local consensus is that the anxiety of workers at low-profitability plants has not been resolved by this agreement[12].

2. Current Situation

Immediately after the agreement was announced, Volkswagen's stock price hit an 11-week high[5]. This reflected the market's sense of relief that a head-on collision between key stakeholders had been averted for the time being[5]. However, the Reuters-affiliated Daily Maverick described the restructuring as the most extensive in Volkswagen's 89-year history[13]. The view is that because it also entails simplifying business divisions, it goes beyond mere workforce adjustments[13].

The pressure on Volkswagen comes from three directions at once: high U.S. tariffs, poor sales in the Chinese market—once its largest source of profit—and the rise of aggressive Asian competitors[5]. Austria's Der Standard reported that German automakers are all pursuing stringent austerity measures[9]. Volkswagen's recent agreement was treated as a symbolic case of this trend[9].

The ripple effects are spreading beyond Germany's borders. Austria's Die Presse reported growing anxiety among Austrian parts suppliers, who are highly dependent on the German market[15]. At the same time, the outlet also reported that Chinese automakers are showing interest in securing production bases within Austria[15]. A contrasting dynamic is emerging: while native European firms are laying off workers, Chinese firms are seeking to expand their local production base.

3. Key Actors and Their Positions

Volkswagen Managementhas prioritized cost reduction and restoring competitiveness. According to Spain's ABC, the company stated that "a consistent adjustment of our workforce size is essential, considering the intensification of global competition, changes in demand, and the technological transformation of the automotive industry"[17]. The layoffs will also include management positions[17].

Trade Unions, including IG Metallprioritize job security. They strongly opposed the company's attempt to unilaterally push through restructuring[16], but ultimately reached a compromise that avoided an extreme confrontation like an extraordinary shareholders' meeting[13]. The outcome suggests a compromise aimed at preventing an escalation of conflict rather than a complete victory for the union.

The Government of Lower SaxonyAs Volkswagen's second-largest shareholder, has a vested interest in maintaining regional employment and its industrial base. The fact that it was cited as a potential check in the company's scenario of calling an extraordinary shareholders' meeting[13] indicates that the state government, alongside the union, served as a brake on radical restructuring.

Chinese Automakersare both part of the backdrop to this situation and actors seeking new opportunities within Europe. While Volkswagen implements layoffs, Chinese firms are exploring securing local production bases in Europe, including in Austria[15]. An EAI report traces the root cause of this trend to sluggish domestic demand in China. It argues that as the downturn in China's real estate market has become prolonged, "a structure has become entrenched in which production capacity that cannot be absorbed domestically is released into foreign markets"[7]. In this process, the EU-China trade deficit reached 360 billion euros in 2025[7].

EU and German Policymakersare forced to choose between trade defense and industrial competitiveness. According to an EAI analysis, the most likely scenario (50-55% probability) is that the EU will incrementally expand its Carbon Border Adjustment Mechanism (CBAM) and anti-dumping tariffs in the following order: steel → EVs → batteries → robots[7][3]. However, a fissure in policy preferences between Germany and France/Italy is expected to be a variable in this process[7].

4. Key Issues

The first issue is the sustainability of the restructuring. NZZ points out that the agreement fails to solve the fundamental problem of overcapacity[12]. This is supported by the fact that the future of the four German plants remains undecided[1][13].

The second issue is the dual structure of the threat. The pressure facing Volkswagen is the result of the simultaneous impact of U.S. tariffs, poor sales in the Chinese market, and intensified competition from Chinese manufacturers[5]. The China factor, in particular, operates in two ways: first, as direct competition within the European market, and second, as the erosion of Volkswagen's position within the Chinese market itself.

The third issue is the concern over the hollowing out of European industry. As the crisis in the German auto industry spills over to parts suppliers in neighboring countries like Austria[15], Chinese firms are simultaneously moving to fill the void by securing local production bases[15]. This can be seen as a case in the automotive sector of the "risk of EU manufacturing hollowing out" that EAI has pointed to[7].

The fourth issue is the time lag in policy response. While the EU's tariff and Carbon Border Adjustment Mechanism (CBAM) response is expected to first target the steel sector before expanding to EVs and batteries[7][3], the restructuring pressure on the auto industry is materializing faster than the policy response. How this time lag will affect the overall bargaining power of the European automotive industry will be a key issue to monitor.

II. In-Depth Issue Analysis

Volkswagen's Plan for 100,000 Layoffs and the Restructuring of the European Automotive Industry: An In-Depth Analysis

1. Analysis of Root Causes

The surface-level causes of the Volkswagen situation can be summarized as tariffs and slowing demand[5]. However, this explanation alone does not account for why this is happening now, and why the scale is 100,000 employees. The root causes are threefold.

The first layer is overcapacity. NZZ pointed out that the Supervisory Board's agreement has not resolved the issue of "still excessive production capacity"[12]. Volkswagen has been attempting to transition to electric vehicles while maintaining the factory network it built for the internal combustion engine era. The forecast that four German plants "will run out of models to produce within the next 10 years"[13] implies that their capacity utilization problems are so severe that they are not being assigned new car models. According to NZZ, the layoffs are little more than a stopgap measure that reduces labor costs without fundamentally resolving the overcapacity problem[12].

The second layer is the reversal of its position in the Chinese market. For Volkswagen, China was once its "largest source of profit" but has now become the epicenter of "poor sales"[5]. This is not merely a cyclical economic factor. It is the result of the rapid expansion of local brands' EV market share in China's domestic auto market, which has structurally eroded the position of foreign joint ventures like Volkswagen. As cash flow from China shrinks, so does the company's capacity to restructure its plants in Germany. This creates a direct link where losses in the Chinese market lead to layoffs in Germany.

The third layer is the rise of "aggressive Asian competitors"[5]. This extends beyond being at a competitive disadvantage within the Chinese market. Austria's Die Presse reported that Chinese automakers are showing interest in securing production bases in Austria[15]. By producing within Europe, Chinese firms can bypass tariff barriers and penetrate the home markets of native European companies. This contrast—European firms laying off workers while Chinese firms seek to expand their production base in the same region—shows that this is not merely a case of management failure at Volkswagen, but a sign that industrial dominance itself is shifting.

2. Structural Context

Political Structure: Volkswagen is not a purely private company. The state of Lower Saxony, its second-largest shareholder, is directly involved in the Supervisory Board[13]. The fact that management considered calling an extraordinary shareholders' meeting over the opposition of the union and the state government[13] demonstrates that restructuring at Volkswagen is not a simple matter of a board resolution. IG Metall's warning of "maximum resistance"[16] fits this same context. Restructuring at Volkswagen is an issue of labor market policy, local government finance, and federal politics. It is highly likely that the Supervisory Board reached an agreement more quickly than expected[13] due to a calculation that the political costs of a prolonged confrontation would become unmanageable.

Economic Structure: Previous EAI analysis frames this situation not at the level of an individual company but within the concept of a 'China Shock 2.0.' "China's export offensive toward Europe stems from structural overproduction triggered by a real estate downturn, and a reversal in the short term is unlikely"[3]. China's current account surplus "expanded from 0.7% of GDP in 2019 to 3.7% in 2025"[3][7]. This indicates that the dynamic of domestic overcapacity being released abroad is not a temporary phenomenon but an entrenched trend[7]. Volkswagen's poor sales in China are a reaction to this immense export pressure. The "paradox whereby Germany's export ranking to China has fallen from 2nd to 9th, yet its trade deficit has actually widened"[7] shows that German industry's role in its relationship with China has already shifted from that of a supplier to that of a victim.

Security Structure: EAI has emphasized that the automotive industry is a security asset, not just an economic one. The industry accounts for "14% of GDP in Germany"[11] and provides an industrial base that can be converted into "military production facilities" in wartime[11]. Volkswagen's layoffs and the debate over the fate of its plants are not just employment issues; they can be read as a sign that Germany's industrial base itself is eroding. As EVs are considered "the darling of the Fourth Industrial Revolution, integrating AI, autonomous driving, and big data,"[11] losing competitiveness in this domain directly translates to losing leadership in next-generation technology.

3. Comparison with Historical Precedents and Similar Cases

The trajectory of the European steel industry, as previously analyzed by EAI, serves as a reference point for the future of the auto industry. "China's export offensive against Europe began in the early 2020s in the electric vehicle and battery sectors," later "expanded to steel, chemicals, and machinery," and "has recently extended to industrial robots"[3]. In other words, EVs were the initial target, placing the auto industry at the origin of this offensive. The pattern seen in the steel industry—where Chinese overproduction floods foreign markets and erodes the profitability of European firms[3][7]—is now repeating itself in the auto industry after a time lag.

Internally at Volkswagen, this is not the first round of major layoffs. An additional 50,000 job cuts were confirmed on top of the "50,000 layoffs already agreed upon at the end of 2024," bringing the total to 100,000[5][17]. The fact that a restructuring of this scale has been repeated in less than two years is evidence that the previous measures failed to solve the underlying problems. IG Metall's resistance to the company's attempt "to roll back the previously agreed restructuring package"[16] can be seen in the same light. In short, Volkswagen's restructuring is not a one-off event but part of a recurring pattern where the unresolved issue of overcapacity resurfaces every two years.

4. Key Variables Shaping Future Developments

The first variable is the final decision on the four plants in Germany. The recent agreement patched up the issue without deciding their fate, instead "leaving their future open"[1][13]. If these plants are not assigned new models, discussions about their closure or sale will likely reignite, making a renewed conflict with the union highly probable.

The second variable is the speed of the EU's trade policy response to China. An EAI analysis assigns a 50-55% probability to the scenario that "the EU will incrementally expand its CBAM and anti-dumping tariffs in the order of steel → EVs → batteries → robots"[3][7]. The timing and manner in which EV tariffs are actually strengthened will determine whether European companies like Volkswagen can secure breathing room in their home markets as an alternative to the Chinese market.

The third variable is the pace at which Chinese firms expand local production in Europe. As the Austrian case suggests[15], the restructuring pressure on native European firms could either intensify or ease depending on how quickly Chinese automakers secure production bases within Europe to bypass tariff barriers.

The fourth variable is Germany's domestic political landscape. The shareholding structure involving the state of Lower Saxony and the organizational power of IG Metall[13][16] will act as constraints each time Volkswagen's management attempts further restructuring. The fact that labor and management reached an agreement "more quickly than expected" this time seems to have been driven by a mutual wariness of the political costs of conflict[13]. Whether this caution persists in the next round of negotiations will be crucial.