Volkswagen Prepares to Slash Costs, Backs Departure of Exec
Volkswagen’s woes deepened Wednesday as company executives said the automaker needed billions of dollars in cost cuts to halt a slide toward the red and recommended the departure of its personnel chief amid a corruption scandal.
The German automaker said it was preparing measures such as pressuring suppliers to cut prices and sharing more components to lift net income by 4 billion euros ($4.8 billion) by 2008, including a pretax improvement of 7 billion euros at its main VW brand.
Intense competition that is hurting all automakers in the United States, a weak dollar and sluggish demand in Europe last year hammered profit at Wolfsburg-based VW.
VW, which also makes Skoda and Bentley cars, has responded with a cost-cutting drive that began to bear fruit in the first quarter. But managers said Wednesday that the program had to be stepped up sharply.
“We are facing, in the near term, even more trouble,” said Wolfgang Bernhard, a former executive at German rival DaimlerChrysler who was drafted in May to head the reorganization. “We have to look at all the possibilities to face the challenge in front of us.”
Investors appeared unconvinced that Bernhard would succeed, sending VW shares down 3.6%, making it the worst performer on Germany’s blue-chip DAX index.
Bernhard said that “no sacred cows” would be spared in the search for savings and that engineers had already identified ways to cut $1,000 from the cost of producing VW’s flagship Golf.
He criticized a string of models launched in recent months as lacking innovation and said quality standards had slipped. The next new models are due in 2008.
Most of the planned savings would come from materials, but Bernhard did not rule out the sale of parts factories -- analysts view the company as hamstrung by overcapacity -- and he did not say whether jobs would eventually be cut.
A deal struck with unions in November giving VW a 28-month salary freeze and lower pay for new hires in return for a no-layoff guarantee until 2012 was the “starting point” for the latest efficiency drive, he said.
VW’s net income fell 31% to 677 million euros last year, though earnings were up in the first quarter partly because of cost reductions. VW is to release its first-half earnings July 29.
Earlier Wednesday, senior directors recommended that VW accept the resignation of its personnel chief, Peter Hartz, whose name has been closely associated with Chancellor Gerhard Schroeder’s efforts to reform the economy.
Hartz offered to quit Friday amid fallout from news that German prosecutors were investigating bribery allegations against two personnel executives. Hartz has denied wrongdoing, and prosecutors have said that he is not under investigation.
Christian Wulff, the governor of Lower Saxony state, VW’s biggest shareholder, said after a meeting of its four-member executive committee that he had “no doubt” that the full supervisory board would accept Hartz’s resignation.
