In a compromise which leaves Volkswagen’s profitability still lagging rivals, the carmaker and its labor unions agreed to cut 30,000 jobs at the core VW brand. The company in turn committed to avoid forced redundancies in Germany until 2025.
The turnaround plan announced on Friday will, from an expected 2 percent in 2016, lift the Volkswagen (VW) brand’s operating margin to 4 percent that year and lead to 3.7 billion euros ($3.9 billion) in annual savings by 2020.
Renault and Peugeot Citroen is targeting an operating margin of 6 percent in 2021 and that target by Volkswagen still remains below rival European carmakers.
An emissions-cheating scandal that has tarnished Volkswagen’s image and left it facing billions of euros in fines and settlements and VW, Europe’s largest carmaker, is seeking to move beyond the scandal.
As part of efforts to shift toward electric and self-driving cars, the company pledged to create 9,000 new jobs in the area of battery production and mobility services at factories in Germany and the cuts came with that pledge.
“We have to invest billions of euros in new cars and services while new rivals will attack us – the transformation will surely be more radical than everything we have experienced to date,” VW brand CEO Herbert Diess said at a press conference.
Some experts argued the cost cuts were not deep enough.
With the need to overhaul the cost base dating back to before the diesel emissions scandal broke 14 months ago, spending on R&D and staff across VW’s automotive operations has been growing for years.
“The deal may be the best the company could negotiate with labor but it’s not a victory for either side. The cuts are too small to make VW cost competitive with Toyota and other global rivals,” said Erik Gordon, a University of Michigan business professor.
Toyota which has 350,000 staff, built slightly more vehicles last year than VW with 610,000 workers globally. Stopping of production of unprofitable vehicles in its 340-model range has been slow for the German car company.
In a step which clears the way to cutting 23,000 jobs via the more palatable methods of buyouts, early retirements and reducing part-time staff, VW’s labor leaders said management had agreed to avoid forced redundancies in Germany until 2025.
Without being more specific, VW said that jobs will also be cut in North America, Brazil and Argentina. Including 6,000 temporary staff, around 120,000 employees work for VW brand in Germany.
Sending the shares more than 2 percent higher to the top of the blue-chip DAX index in early Frankfurt trading, many analysts and investors nonetheless welcomed the deal.
It looked like a good deal all round provided it could be made to stick, said activist hedge fund TCI, which has been critical of Volkswagen management.
“As long as they are net savings – the savings are not given back by increased costs elsewhere in the organization. They’ve just to deliver now. It’s easy to talk. They now have to deliver and execute,” said TCI partner Ben Walker.
Labor leaders were pleased with the outcome.
“The most important message is the jobs of the core workforce is secure,” VW’s works council chief Bernd Osterloh said at the news conference in Wolfsburg, where the company has its headquarters.
(Adapted from Reuters)