/ 17 February 2006

Volkswagen to cut its losses

Volkswagen warned recently that it could axe up to 20 000 jobs at its core VW brand and close several loss-making German plants in a restructuring designed to restore profits.

CE Bernd Pischetsrieder told VW’s 103 000 German employees that their productivity was low, plants recorded high losses and some component operations were uneconomical.

His new plan coincided with a 70% leap in operating profits to â,¬8-billion last year — largely thanks to the â,¬3,5-billion savings made under a previous efficiency drive, ForMotion.

But Pischetsrieder said VW had made only a ”very slight” profit after steep losses. ”We continue to incur significant losses on cars exported from Germany to the United States. To ensure a long-term future for the group, we must act rapidly,” he said.

Shares in VW rose more than 6% as the group said pre-tax earnings rose almost 60% last year to â,¬1,72-billion, proposed raising the dividend from â,¬1,05 to â,¬1,15 and predicted higher earnings this year.

German unions feared that VW could tear up a 2004 agreement guaranteeing no compulsory job cuts or plant closures until 2011 and that, under Wolfgang Bernhard, the new VW brand chief who cut costs at Chrysler, 30 000 jobs would go.

Pischetsrieder said the VW board would stick to the 2004 agreement and insisted that the aim was not to cut jobs but drive down labour costs.

”The target is to ensure the competi-tiveness of the group … This is not possible with current conditions.”

VW pay is 20% higher than the rest of German engineering, while productivity is said to be 50% lower than in the best Japanese plants.

The VW job cuts follow 16 000 announced by Mercedes in Germany and the total of 60 000 sought by General Motors and Ford in the US — Â