Volkswagen and German unions reached an agreement after marathon meetings and unprecedented strike action in Germany.

Under the agreement announced on December 20, VW will retain operationally the 10 German factories of the brand and will restore jobs security agreements until 2030. Around 35,000 jobs will be cut in Germany by 2030 and factory productivity will drop by 700,000 vehicles.

VW seeks to reduce costs as the European market shrinks, Reuters reports.

“Christmas Miracle”

Union officials hailed the deal as “christmas miracle” after 70 hours of grueling negotiations, the longest in the company’s 87-year history. There will be no immediate factory closings and layoffs and VW backed down on its demand to institute wage cuts 10%

The deal, which avoids costly strikes, may also provide relief to investors after months of negotiations. Shares rose 2.4% in extended trading after the deal. This year VW stock has lost 23% of its initial value.

Volkswagen has been in talks with union representatives since September for measures it deemed necessary to compete with cheaper Chinese rivals and to handle lackluster demand in Europe and slower-than-expected adoption of electric vehicles.

About 100,000 Workers have already staged two separate strikes in the past month, the largest in Volkswagen’s history, to protest cost-cutting plans.

“With the package of measures that has been agreed, the company has set a decisive course for its future in terms of costs, capabilities and structures,” said Volkswagen Group CEO Oliver Blume. “We are now once again able to successfully shape our destiny.”

Savings of 15 billion euros

Volkswagen announced that the agreement will allow savings of 15 billion euros per year in the medium term and that with this agreement there is no significant impact on its growth and financials in 2024. Although there will be no immediate closure of the factories, VW announced that it is considering various options for its factory in Dresden and reuse of the factory in Osnabrueck, including the search for a buyer of the factory in Osnabrueck. Part of the production will be transferred to Mexico.

Vehicle production will be shut down at the Dresden plant by the end of 2025. VW staff will not receive increases under a collective wage agreement for the next four years, and some bonuses will be abolished or reduced.

Production at VW’s Wolfsburg plant, its largest plant, will be reduced to two assembly lines from four.

“No construction sites will be closed, no one will be fired for operational reasons and our company’s wage agreement will be secured for the long term,” said the head of the workers’ council Daniela Cavallo.

The fifth round of negotiations had started on Monday and continued late into the night on Friday 20 December in Hanover, with negotiators taking only short breaks for sleep and light meals.

The 35,000 future job cuts will represent around a quarter of VW’s workforce and come alongside a reduction in the company’s German factory network by more than 700,000 vehicles.

However, IG Metall chief negotiator Thorsten Groeger said the cutswhich there would be no compulsory redundancieswere part of a solution to address overcapacity and would be done in a socially responsible manner.

Matthias Schmidt, an analyst of European car markets, said: “Cutting 35,000 jobs on a demographic curve by 2030 is likely not enough to address the current stagnation we are seeing in the European market.”

And he added: “I would say the unions can get more than that from VW, but realistically because of the complex structure of the company that was probably the best they could realistically hope for.”

The crisis has hit VW at a time of uncertainty and political turmoil in Europe’s biggest economy, as well as wider turmoil among Europe’s carmakers.

The question of how to fix Germany’s sluggish growth has taken center stage as a campaign issue ahead of snap elections in February, while the chancellor Olaf Solztrailing in the polls, urged VW to keep all its factories open.

Soltz is satisfied

Chancellor Olaf Solz on Friday night welcomed the agreement as “a good, socially acceptable solution”, adding to statement: “Despite all the difficulties, it ensures that Volkswagen and its employees can look forward to a good future.”

Alexander Krueger, chief economist at Hauck Aufhaeuser Lampe Privatbank, said that “at first glance it looks like a compromise that both sides can live with.”

“Other companies are also pursuing job-cutting plans, and VW appears to be just the beginning,” he said. “Competitive price pressure will likely require further adjustments at a later date.”

Former Volkswagen leaders, including Herbert Diess and Bernd Pischetsrieder, failed in their attempts to make sweeping changes at the Wolfsburg-based carmaker as unions remained firmly in place.

IG Metall’s threat of strikes was a powerful bargaining chip. UBS estimates that each strike day in Germany may have cost VW up to €100 million in revenue and around €20 million in operating profit, with basis 2,000-3,000 fewer vehicles produced per day.