Home News Volkswagen to cut up to 20,000 jobs in restructuring

Volkswagen to cut up to 20,000 jobs in restructuring

Published on February 10, 2006

10 February 2006

WOLFSBURG, GERMANY – Volkswagen, Europe’s biggest volume car manufacturer, announced Friday from its German headquarters a major restructuring programme to restore profitability, adding that as many as 20,000 of its Volkswagen car division employees could be affected.

The group, which also makes Skoda, Seat and Audi cars, said in Wolfsburg, where its Volkswagen-badge cars are designed and made, that the Volkswagen brand had only just broken even in 2005.

Releasing its figures earlier than originally planned, it said operational earnings rose 70 per cent from 1.6 billion euros in 2004 to 2.8 billion euros (3.3 billion dollars) last year. It promised shareholders a higher dividend.

It attributed the gain to financial transactions and earlier cost-cutting in its worldwide manufacturing operations.

Financial markets welcomed the figures, which exceeded analysts’ expectations, and the restructuring. On the Frankfurt Stock Exchange, VW shares traded at 52.60 euros by early afternoon, a gain of 3.9 per cent compared to Thursday’s close.

Group profit was posted at 1.12 billion euros, up from 697 million euros a year before and well ahead of the average of analysts’ forecasts of 873 million euro.

The bright figures and sweeping cuts reinforce a picture of Volkswagen as a sprawling company where some divisions are remarkably healthy and others, reputably in thrall to labour unions, are sick.

The restructuring will involve selling German in-house plants that make VW components as well as reducing labour costs generally at the mother brand. Volkswagen’s objective would be to trim capacity so that factories only made as many Volkswagen cars as were needed.

Last year’s sales rose 7 per cent to 95.3 billion euros.

Financial analysts have pointed out that Volkswagen, of which one fifth belongs to Porsche and another fifth to the state of Lower Saxony, is mainly making money from its upscale German marque Audi and from its Czech brand Skoda which has much lower labour costs.

The company has been hit by weak sales of VW cars in their two main markets, Germany and China. Its Spanish mass-market brand, Seat, is also unprofitable.

As rumours spread before the announcement, Germany’s top analyst on the auto industry, Ferdinand Dudenhoeffer, said selling the Volkswagen-brand components factories would be a way to fix many problems in one fell swoop.

This would save the company 500 million euros annually, said Dudenhoeffer, who heads the B&D Forecast institute in Leverkusen, Germany. The components plants, mostly within a 100-kilometre radius of Wolfsburg, make axles, engines and gearboxes.

He told Deutsche Presse-Agentur that Volkswagen was unusual in doing a large amount of its own manufacturing while having some of the highest labour costs in the industry.

Volkswagen said Friday it had saved 3.5 billion euros in 2005 thanks to a cost-trimming programme code-named “ForMotion” that applies to the whole group, beating the target of 3.1 billion euros in savings.


Subject: German news