“The [steel] market sentiment is pessimistic, especially in Germany, where many companies are sizing down [operations] and announcing layoffs,” a trading source in Germany told Fastmarkets on Monday December 23.
Following several strikes and over 70 hours of collective bargaining, VW and trade union IG Metall have finally reached the agreement “Zukunft Volkswagen,” which shapes the company’s future until 2030, VW said in a statement published late on Friday December 20.
VW’s board of management was initially pushing for the closure of three car-making plants, which was averted, but massive layoffs and production cuts have been announced.
Notably, a reduction in capacity of 734,000 units across German plants is planned before 2030, and the workforce will be reduced by more than 35,000 people across VW’s German locations by 2030.
IG Metall said they were satisfied with the results, though.
“That is correct, [there will be job cuts]. But you have to consider that the ‘job cuts’ will be socially responsible, meaning there will be solutions through part-time retirement etc.,” IG Metall’s spokesperson told Fastmarkets on Monday.
IG Metall said in a statement seen by Fastmarkets, “Although there are concessions under the collective agreement beyond the monthly income [i.e., changes in bonuses and holiday pay], these are offset by the solidarity-based safeguarding of all sites, including future prospects [and] a new job protection until the end of 2030.”
The jointly declared goal announced for the Volkswagen Passenger Cars brand, the core of Volkswagen AG, is to become the technologically leading volume manufacturer globally by 2030.
“The comprehensive capacity reduction across the German plants and significant and sustainable decrease in labor costs of €1.5 billion ($1.56 billion) per year as part of the ‘Zukunft Volkswagen’ agreement have now created the financial conditions for this goal,” VW said in a statement on Friday.
Altogether, VW aims to save over €15 billion per year in the midterm.
Restructuring of manufacturing sites
The electric cars ID.3 and Cupra Born will be built in VW’s Wolfsburg plant. Golf and Golf Estate production will shift from Wolfsburg to Mexico in 2027, but an electric Golf and an electric vehicle (EV) based on the modular car platform Scalable Systems Platform (SSP) will be made in Germany around 2030.
As a result, production will be focused on two assembly lines instead of the current four.
The Emden plant will continue to build the EV models ID.4 and ID.7.
The Osnabrück factory will stop production of the T-Roc Cabrio in mid-2027. “Options for a different use of the site are currently being explored,” VW said.
Zwickau will focus on one production line as of 2027, building the Audi Q4 e-tron and the Q4 e-tron Sportback.
The Dresden plant, known as the Transparent Factory, will halt production before the end of 2024. It currently builds the ID.3 model; VW said they’re working on alternative options for the plant.
The Volkswagen Group Components sites in Kassel, Braunschweig, Salzgitter, Hannover, Wolfsburg and Chemnitz will be retained, but these locations will have new working time models to make production capacities more flexible.
European automotive sector in decline
Output from the EU’s automotive sector is expected to decline in 2024, according to the European Steel Association’s (Eurofer) latest quarterly report, published at the end of October.
The sector is expected to decline by 6.5% in 2024 (revised downward from a 3% decline in a previous outlook) and to increase by just 1.9% in 2025 (revised downward from a 2.3% growth), the association said.
New car sales fell by 1.9% in Europe this November, dragged down by a 9.5% drop in overall EV sales, including a 21.8% slump in German EV sales, according to data from the European Automobile Manufacturers Association (ACEA), published on Thursday December 19.
VW said in September that annual European car demand should level off around 14 million vehicles, down from 16 million before the Covid pandemic.
Steel sector under pressure
The automotive industry is the second-largest steel-consuming industry after construction, according to Eurofer, so the steel sector “feels” the decline in consumption.
“We had around 20% fewer orders from the automotive sector year on year [in October-December],” a steel service center source in Germany told Fastmarkets.
A German buyer said, “The missing investments create no demand; therefore, all flat steel producers in the EU have obtained, for months, only minimal orders from the automotive industry.”
And the trading source in Germany said, “On top of that, Germany is effectively without [a] government. A newly elected government can’t be in power until around April 2025, at best. Such a long waiting time is poison for any investor who needs security for their planned projects.”
Negotiations between steel mills and original equipment manufacturers (OEMs) in the automotive industry for hot-rolled coil contracts for the first half of 2025 and the full year were still under way.
In the week to Friday, several sources reported some closures of half-year contracts between steel mills and automotive OEMs for the first half of 2025, with a discount of €80 per tonne compared with the second half of 2024.
Some contracts were heard done at €650-670 per tonne, compared with €730-750 per tonne in the second half of 2024, sources told Fastmarkets.
Initially, automakers were asking for a more substantial discount of €100-150 per tonne, Fastmarkets heard.
But in the spot market, European mills have been trying to push for higher prices recently.
“Mills are trying to increase spot prices in an attempt to bring down the gap with long-term contracts that they are currently negotiating with the automotive industry,” a second buyer source said.
Fastmarkets calculated its daily steel hot-rolled coil index domestic, exw Northern Europe at €565.00 per tonne on Friday, up by €2.50 per tonne week on week and by €3.33 per tonne month on month.
