VW profits plunge 63 percent

9 March 2004

WOLFSBURG – German car concern Volkswagen said it aims to double its cost savings targets through the end of 2005 and cut employment in a bid to regain its footing after operating results plunged nearly 63 percent last year.

As the VW launches into its cost-cutting efforts, chairman Bernd Pischetsrieder warned about the car concern’s start so far in 2004.

“The first quarter, as well, will be miserable in comparison with the same period a year ago,” Pischetsrieder said.

VW said operating results, after adjustments for one-off factors, fell to EUR 1.8 billion, down 62.6 percent from 2002 figures.

The company said its net plunged to EUR 1.1 billion, from EUR 2.6 billion in 2002, while sales increased a tiny 0.3 percent to EUR 87.2 billion. Car deliveries came to 5.015 million, up from 4.984 million in 2002.

Without the sharp rise of the euro versus the dollar, sales would have been some EUR 3.5 billion higher, VW noted.

Among various divisions, the main VW brand’s operating earnings plunged to just EUR 649 million in 2003, from EUR 2.46 billion the year before, amid the costs of introducing the new VW Golf, which the firm admitted had gotten off to a slow start.

The commercial vehicles division fell into the red by EUR 218 million, after 2002 profits of EUR 721 million, while the higher- class Audi achieved earnings of EUR 1.12 billion, off from EUR 1.36 billion in 2002.

Europe’s largest automotive concern cited tough pricing competition, the high up-front costs in launching new models, the effect of the strong euro on sales and costs for revamping its Brazilian operations for last year’s earnings downturn.

For 2004, the company is aiming for operating profits of EUR 2.5 billion, while at the same time planning more ambitious cost- savings, VW said at its Wolfsburg headquarters.

The company – maker of the VW, Audi, Skoda, Seat, Bugatti and Bentley brands – now aims to save EUR 4 billion through the end of 2005, double the previous target of EUR 2 billion, under a programme called “For Motion”, VW said.

At the same time, VW’s current worldwide payroll of 335,000 employees is to be trimmed by 3.5 percent, the company said.

Employee reductions of 5,000 will be made outright, while the remaining payroll trimming will affect “indirect personnel”, meaning those not directly working on the assembly lines.

Pischetsrieder said that in addition to the weak market situation at the moment, the company was being hit by the up-front costs in introducing the new Audi A6 model and Skoda’s new Oktavia.

“But we will certainly again go beyond the 5 million mark in sales,” he predicted for 2004.

He said VW aims to be represented in every market niche. The Spanish-made Seat cars, in a new “model offensive”, will be moved up into a higher price bracket, while the Czech-built Skoda, placed in the lower brackets, will meet the competition from Asian carmakers.

Pischetsrieder also said VW aims to introduce a car in Europe with a price tag “clearly” below EUR 10,000. The Brazilian version of this car, the Fox, is already a major success, he said.

DPA
Subject: German news