Volkswagen announces further €3 billion in cost cuts to improve profit margins | News | DW | 06.12.2018
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Volkswagen announces further €3 billion in cost cuts to improve profit margins

The German auto giant has said savings will come from culling models as well as workforce. The company also plans to triple the number of SUVs in its fleet while expanding its offer of electric cars.

German auto giant Volkswagen (VW) announced ambitious plans for the company's future on Thursday, saying it aims to cut another €3 billion ($3.41 billion) in operating costs by 2023 in order to increase investment in electric cars and digitalization.

VW had already undertaken steps to sink costs by €2.2 billion in 2018 and €3 billion in 2020.

Trimming the fleet

VW Chief Operating Officer (COO) Ralf Brandstätter said the cuts were an important part of the company's plan to raise enough cash to break into the electric car market. Brandstätter said the company would trim the number of models on offer, noting: "There are model variations that no one buys."

It was also announced that customers will have fewer options to choose from on other models as VW will cut one-quarter of its engine and transmission options in Europe next year. For instance, entry-level cars will only be offered with manual transmissions as few customers order them as automatics.

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Trimming the workforce

The company's workforce will also be trimmed "along demographic lines" though no numbers were given on Thursday. The company says it is in talks with labor force representatives to find "socially acceptable solutions." According to Chief Financial Officer (CFO) Arno Anlitz, VW has a "great opportunity to thin our administrative workforce."

Volkswagen currently employs some 198,000 workers globally. The company previously announced that it would reduce its workforce by up to 21,000 before 2020 as part of its "Zukunftspakt," or pact for the future. Company bosses, however, claimed there would be no "Zukunftspakt 2.0."

Increasing profits

VW is seeking to increase productivity by as much as 30 percent and operating returns by "at least six percent" by 2020, three years ahead of schedule.

COO Brandstätter said of the plan: "We have to increase the speed of our transformation: Become more efficient, more agile."

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One means to that end is VW's plan to make more use of its standardized MBQ platform, which allows it to mount a number of different bodies on one chassis type. Another is VW's intent to invest heavily in electric car production — the company says it has earmarked €9 billion to that end. VW currently has only two electric cars in its portfolio. It plans to have 20 models on offer by 2025.

Risks and contradictions

But some automobile experts see risks: "Volkswagen is lagging behind, much like other manufacturers," says Professor Stefan Bratzel of the Center of Automotive Management at the Bergisch Gladbach Technical College in North Rhine-Westphalia.

Bratzel says another risk factor is uncertainty as to whether Germany and other markets will be able to create the infrastructure needed for electric cars in the near future.

He also pointed to what he said was a contradiction in VW's plans for the future: The fact that the company also wants to expand its fleet of large, gas-guzzling SUVs from 11 to 30 by 2025.

And a whole lot of money

Last year, VW nearly doubled profits, which came in at €13.8 billion, up 95 percent over 2016. At the same time, the company laid out €3.2 billion in legal costs following an emissions cheating scandal involving its fleet of diesel cars.

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js/amp (AFP, dpa) 

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