Volkswagen is contemplating a sweeping overhaul that goes beyond cost reduction, with plans under discussion to shed as many as 100,000 positions and to wind down some higher-cost factories in Germany. Company leadership is weighing what would be the biggest restructuring in the automaker’s history as it confronts tariffs, rising expenses and stronger competition from Asian manufacturers.
Sources briefed on the plans say management is considering doubling its previously signalled job cuts and shuttering four German plants. Executives are also studying a division of the business into separate entities for passenger cars and for components. That structural change would have implications not only for operating efficiency but also for the legal and governance framework that has long shaped decision-making at the group.
The legal backdrop is the so-called Volkswagen law, which has for decades reinforced the influence of labour and the state of Lower Saxony in the company’s governance. The law applies to VW AG, the entity that holds the group’s six core German factories, and in practice makes it difficult for management to proceed with plant closures without broad shareholder agreement. Creating distinct corporate entities for passenger cars and components could open a path around those constraints, according to three financial and legal sources familiar with the discussions.
Spinning off the passenger car operation - a division the sources say bears the brunt of tariff exposure, weak demand in Europe and aggressive price competition in China - is among the options under consideration. But such a move would set up a direct confrontation with entrenched stakeholders. IG Metall, Germany’s largest industrial union, has already characterised the carve-out proposals as an "attack on the VW law," signalling an intense political and industrial battle if management presses ahead.
Labour’s sway on Volkswagen’s supervisory board is substantial: together with Lower Saxony, employee and state representatives hold a majority of seats. Ulrich Hocker, president of the investor group DSW, described that influence as "excessive" and a relic of an earlier era. He urged recognition that a significant transformation is necessary to secure the company’s future, arguing that past compromises have repeatedly failed to deliver fundamental change.
In legal terms, however, the Volkswagen law still looms large. Any formal spin-off would likely need approval from more than 80% of shareholders, an effective veto right for Lower Saxony, which controls 20% of the voting rights. One source cited by those following the talks said it was inconceivable that the state would approve a vote that reduced its own authority.
Political leaders have signalled resistance to moves that would dilute worker influence. Olaf Lies, the premier of Lower Saxony and a supervisory board member, stated that the state will not countenance measures that weaken workers' power, calling that representation an "integral part of Volkswagen’s success story." He has proposed instead shifting production of models intended for the Chinese market to Germany as a way to make better use of under-utilised plants - an idea that management has reportedly floated in internal discussions.
Beyond the governance implications, investors see a potential financial rationale for simplifying Volkswagen’s complex structure. The group spans ten brands and holds substantial stakes in other businesses, a configuration some shareholders have argued obscures value. A notable disparity exists between the market’s valuation of the group and the combined value attributed to certain assets: Volkswagen’s majority interests in truck maker Traton and sports-car maker Porsche are estimated to be worth about 44 billion, which exceeds the group’s market capitalisation of roughly 37.6 billion.
Analysts at several institutions say isolating the core passenger-car business could unlock value. One comparison used by Citi strategists likened such a carve-out to creating a "bad bank" - segregating weaker or geopolitically exposed operations to leave a smaller, more focused holding company that is less vulnerable to tariff shocks and sluggish regional growth. Still, UBS cautioned that any restructuring is likely to be accompanied by specific provisions and could prompt a downgrade to Volkswagen’s 2026 outlook.
The backdrop to these strategic options is stark: the sector is under pressure, Volkswagen’s share price is trading near 16-year lows, and internal tensions are increasing. Some investors contend that management has limited alternatives and must confront entrenched governance arrangements to guide a transformation large enough to meet the company’s competitive challenges.
Context and next steps
Companies considering sweeping structural change typically face a mix of legal, political and labour hurdles. At Volkswagen, the interplay of the Volkswagen law, union influence and state ownership creates a particularly complex governance environment. Any path to implement the kinds of cuts and carve-outs being discussed would likely involve protracted negotiations and require shareholder votes or other legal remedies to be executed.