VW to save 3.5% by job cuts in new cost-cutting programme

Bernd Pischetsrieder, Volkswagen AG chairman has said first quarter operating profit will be "miserable" compared to a year earlier as he unveiled plans to cut €4bn in costs by the end of 2005.

Part of these cuts will come from job loss.

He said VW plans to cut its worldwide workforce by 3.5% by the end of next year through early retirement and natural wastage.

Pischetsrieder said VW is unlikely to see a rise in operating profit this year, describing such a goal as "ambitious".

The company reported deliveries in January and February totalled 689,000 units worldwide, down 6% year-on-year, and looking ahead, it forecast a slight rise in worldwide vehicle deliveries this year excluding China.

He said apart from the market situation, several new models, such as the Audi A6, SEAT Altea, Volkswagen Caddy or the Skoda Octavia, have had a one-off negative impact both in terms of costs and earnings.

Pischetsrieder unveiled details of a seven-point cost-cutting programme dubbed "ForMotion" which he said is aimed at off-setting the effects of weak markets.

ForMotion will include cutting production costs, minimising one-off spending, streamlining production processes, boosting sales, cutting losses at VW's trucks unit and increasing earnings at foreign subsidiaries.

He said before ForMotion, the company was targeting €1bn in cost cuts this year and another €1bn next year. The new programme adds another €1bn per year to those targets.

Pischetsrieder said the effects of the programme will become fully visible during the course of 2005 but that some positive impact can be expected on earnings in the current year.