Audi to Cut 7,500 Jobs in Major Restructuring Effort

Audi has announced a significant reduction in its workforce, planning to eliminate 7,500 positions over the next four years as part of a comprehensive cost-saving strategy aimed at achieving annual savings of one billion euros in personnel expenses. This decision was disclosed during the company's first employee meeting of the year held in Ingolstadt.

In exchange for the layoffs, Audi will extend its employment protection agreement, which prohibits layoffs due to operational reasons, by an additional four years until 2033. This information was shared with around 8,000 employees present at the meeting, where the works council, led by Jörg Schlagbauer, emphasized that they managed to avert more severe measures against the workforce while reaching compromises to allow for further investments.

The job cuts will primarily impact roles in indirect areas, such as administrative and support functions, rather than direct production positions. This suggests that Audi's headquarters in Ingolstadt may face the brunt of the layoffs, with numerous engineers in the technical development sector expected to leave the company through a severance program. Currently, Audi employs 87,000 individuals, with approximately 55,000 based in Germany. Until now, these employees enjoyed a job guarantee that was set to last until 2029.

Employees had anticipated some form of workforce reduction after the activation of a "bad weather clause" in the 2019 agreement known as "Audi Zukunft," which was established between management and labor representatives. This clause indicated that the company was prepared to implement a stricter austerity program.

Earlier this year, the IG Metall union raised concerns about the potential implementation of drastic measures at Audi, which included proposals to reduce wage levels, eliminate night shift bonuses, and outsource jobs in production, logistics, and administration--affecting around 1,600 positions. The works council subsequently vowed to resist such plans.

Despite the layoffs, existing contractual and operational regulations for the remaining workforce will remain intact. The works council's demand for an additional vehicle model to be produced at the Ingolstadt facility to ensure sufficient workload has been met. Consequently, the Ingolstadt plant will now produce the Audi Q3, which was previously manufactured in Hungary. Due to low capacity utilization at the Neckarsulm facility, discussions are reportedly underway within the Volkswagen Group to determine which vehicle model might be suitable for production at that site.

Audi aims to invest up to eight billion euros in its German facilities, with a significant portion allocated towards highly automated manufacturing processes. Additionally, a future fund of over 250 million euros is set to be established to support new technologies at the Ingolstadt and Neckarsulm locations.

The company intends to manage the job reductions without resorting to operational layoffs. By 2027, Audi plans to eliminate 6,000 positions. The intensified cost-cutting measures are part of CEO Gernot Döllner's strategy to restore profitability to the brand, with the goal of transforming Audi into a leaner and more efficient operation.

As Döllner prepares to present the annual financial results, the company's challenges are anticipated to be evident, as profit margins have fallen below 5% in recent quarters. Döllner was appointed to the role by Volkswagen Group CEO Oliver Blume in the summer of 2023, with the objective of gradually returning Audi to a profitability level consistent with that of a premium brand. The long-term target is to achieve double-digit profit margins by the end of the decade.

The mid-term margin goal is set at 13%. Audi has faced significant pressure not only from declining demand in the vast Chinese automotive market but also from delayed launches of several new models due to persistent software issues. In the previous fiscal year, the company reported sales of just 1.67 million vehicles, a 12% decrease, which placed it behind American electric vehicle manufacturer Tesla. Additionally, sales of Audi's electric models have also seen a downturn despite the global growth of the electric vehicle market.

The broader German automotive industry is currently grappling with falling sales and profitability, but Audi has been particularly hard hit compared to competitors like Mercedes and BMW. Volkswagen, Audi's parent company, has already initiated measures to address these challenges, including terminating existing employment guarantees and implementing salary reductions, along with a phased reduction of 35,000 jobs by 2030. While the initially proposed factory closures were averted through negotiations, the Brussels plant was closed at the end of February, where the less popular Q8 e-tron electric SUV was produced.