Up to 20,000 employees at German car giant Volkswagen feared for their jobs Friday as the car maker unveiled deep restructuring plans, even though profits soared last year.
Stormy times ahead?
"In order to boost the wholly unsatisfactory level of profitability of the VW passenger car brand, an extensive restructuring program has been drawn up," Europe's biggest car maker said. "In the next three years, up to 20,000 direct and indirect employees could be affected by this restructuring program."
VW declined to specify exactly how the employees might be affected or say if or how many jobs might be on the line as part of the shake-up.
But newspaper reports suggested that the restructuring would entail the sale of components plants, which would automatically reduce the group's headcount.
Given the "extremely tense economic situation, earnings of the VW brand were only just above breakeven," VW explained.
VW CEO Bernd Pischetsrieder
"In particular, the export capability of the German VW plants is not ensured," said CEO Bernd Pischetsrieder. "We continue to incur significant losses on cars exported from Germany to the US. In order to ensure a secure long term future for the group, we must act rapidly and determinedly to eliminate the problems that we face."
VW said the measures would include "elimination of productivity deficits, particularly in the car assembly plant."
Making labor costs "more competitive"
The components manufacturing business would be "reorganized", labor costs made "more competitive" and capacity utilization boosted, it said.
Unions were angered by the company's refusal to put forward any concrete figures for the possible job losses.
VW workers during a warning strike at the company's headquarters in 2004
The restructuring program "raises more questions than it answers," said the regional branch of the powerful IG Metall union in Lower Saxony, where VW is based.
IG Metall recognized the need to boost efficiency and optimize production, but insisted that job guarantees made under a collective agreement in November 2004 should be stuck to.
Under that agreement, management had pledged to guarantee around 100,000 jobs at the car maker's German plants until 2011.
Honoring previous deals
Pischetsrieder insisted that management board stood by that deal.
Nevertheless, the car maker was finding it difficult to ensure the competitiveness of the group and its employees under current conditions and hoped it could hammer out a new deal with unions and employee representatives.
VW's works council said "have had enough of all the weeping and wailing about difficult the situation is."
What was needed was a clear, level-headed strategy "not hectic actionism that will repeat past errors," it said in a statement, roundly slamming speculation about the possible sale or closure of plants.
Are VWs not selling fast enough?
The VDA auto industry federation insisted that while the belt-tightening measures at VW were certainly "painful," they were "necessary" in view of fierce competition from low-cost countries.
The German auto industry "may be hard to be hard to beat in terms of products, technologies and know-how. But in terms of costs, working time and flexibility, it's a different matter," said VDA chief Bernd Gottschalk.
Investors liked what they saw
For their part, investors were enthusiastic about the prospect of a radical shake-up and VW shares surged 4.45 euros or 8.8 percent to an intraday high of 55.07 euros on the Frankfurt stock exchange.
VW also published preliminary 2005 results, which showed that previous cost-cutting measures had helped boost profits last year.
Bottom-line net profit jumped by 61.5 percent to 1.12 billion euros ($1.3 billion) and operating profit before special items soared by 54.3 percent to 3.143 billion euros on a 7.1-percent rise in sales to 95.268 billion euros.
VW sold a total 5.243 million vehicles worldwide last year, 3.2 percent more than in 2004. The workforce totalled 344,902 as of Dec. 31.
The carmaker said it would propose an increased dividend for 2005, with ordinary shareholders to be paid 1.15 euros per share, up from 1.05 euros in 2004. Preference shareholders would receive 1.21 euros per share, up from 1.11 euros a year earlier.