Volkswagen and its labour unions have agreed to cut 30,000 jobs at the group’s core VW brand in exchange for a commitment to avoid forced redundancies in Germany until 2025, a compromise which leaves the carmaker’s profitability still lagging rivals.
The turnaround plan, announced yesterday, will lead to €3.7bn in annual savings by 2020 and lift the Volkswagen brand’s operating margin to 4% that year, from an expected 2% in 2016.
That target still remains below rival European carmakers such as Renault and Peugeot Citroen, which is targeting an operating margin of 6% in 2021.
VW, Europe’s largest carmaker, is seeking to move beyond an emissions-cheating scandal that has tarnished its image and left it facing billions of euro in fines and settlements.
The cuts came with a management pledge to create 9,000 new jobs in the area of battery production and mobility services at factories in Germany as part of efforts to shift toward electric and self-driving cars.
“We have to invest billions of euro 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 chief executive Herbert Diess said at a press conference.
Some experts argued the cost cuts were not deep enough. Spending on R&D and staff across VW’s automotive operations has been growing for years with the need to overhaul the cost base dating back to before the diesel emissions scandal broke 14 months ago.
“The deal may be the best the company could negotiate with labour but it’s not a victory for either side,” said Erik Gordon, a University of Michigan business professor.
“The cuts are too small to make VW cost competitive with Toyota and other global rivals.”
With 610,000 workers globally, VW last year built slightly fewer vehicles than Toyota which has 350,000 staff. The German company has also been slow to cease production of unprofitable vehicles in its 340-model range.
VW’s labour leaders said management had agreed to avoid forced redundancies in Germany until 2025, 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. Jobs will also be cut in North America, Brazil and Argentina, VW said, without being more specific.
Around 120,000 employees work for the VW brand in Germany.
This includes 6,000 temporary staff.
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