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VW brand to shrink workforce further in bigger savings push

Mar 13 2019 18:42
Christoph Rauwald, Bloomberg

Volkswagen’s main car brand plans to deepen cost cuts and axe more jobs as profits slip in the industry’s shift to electric and self-driving cars.

The German carmaker said on Wednesday it will eliminate as many as 7 000 positions - with measures including early retirement and not filling vacant positions - to achieve an annual profit gain of €5.9bn starting in 2023.

"We will significantly step up the pace of our transformation so as to make Volkswagen fit for the electric and digital era," VW brand COO Ralf Brandstaetter said.

The VW car brand, which accounts for about half of the group’s global deliveries, employs about 185 000 workers out of a total workforce of 650 000. VW has been pushing to rein in bloated expenses to lift profitability that’s trailing rivals. Return on sales for VW’s namesake brand last year fell to 3.8% from 4.2% because of higher spending on future electric models and production bottlenecks triggered by stricter emission rules in Europe.

Labour costs are a "big concern" that risk derailing a much-needed streamlining of operations, VW Chief Executive Officer Herbert Diess told investors on Tuesday. Diess, who also heads up the VW brand, has been axing slow-selling models and car variants to reduce complexity. Further measures will include lowering material costs and lifting productivity at its factories by 5% to achieve an operating profit margin of 6% in 2022.

Chief Financial Officer Arno Antlitz acknowledged that while the company has "higher goals" that reflect its superior scale compared to smaller, more profitable rivals like PSA Group, VW was sticking to the 6% target "in the mid-term" as the cost for the looming industry transformation weighs on earnings.

Volkswagen shares on Wednesday rose 1.4% to €146 at 12:11 p.m. in Frankfurt trading.

VW signed a labour pact in 2016 to cut 30 000 jobs worldwide and generate about €3bn in annual savings. The brand has achieved €2.4bn in savings so far and a net reduction of more than 6 300 positions, despite adding 2 700 jobs including in software operations, VW said on Wednesday. "We are on track," Brandstaetter said.

Bernd Osterloh, VW’s powerful labour leader, signalled support for further cutbacks in principal, stressing a job guarantee until at least 2025 remains in place with any job reductions based on voluntary agreements. He also urged a draft labour pact on retraining employees for software and digital operations, Osterloh told Bloomberg in an emailed statement.

For this year, the VW nameplate targets revenue growth of as much as 5% and an operating return on sales between 4% and 5%. It will boost investment in future technology to €19bn through 2023, an increase of €8bn.

VW will start producing the first model of its all-electric ID car range toward the end of this year. Order books for the electric ID hatchback open on May 8 and sales chief Juergen Stackmann said feedback from dealers is so strong that the model might be sold out before its official presentation in September.

"Our goal is to become the world’s number one in e-mobility by 2025," Brandstaetter said. The brand plans to bring to market more than 20 vehicles based on the ID’s fully-electric underpinnings and still intends to sell at least 1 million purely battery-powered vehicles by 2025, he said.

To generate the funds needed for the electric-car development, VW will introduce more SUVs like the compact T-Cross this year as well as the Tharu and Tayron models in China.

volkswagen  |  companies  |  industrial
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