Volkswagen agrees to deal with unions

Company seeks 3.7B euros in savings by 2020

WOLFSBURG • Volkswagen and its labour unions agreed to cut 30,000 jobs at the 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 on Friday will lead to 3.7 billion euros (US$3.9 billion) in annual savings by 2020 and lift the Volkswagen (VW) brand’s operating margin to four per cent that year, from an expected two per cent in 2016.

That target still remains below rival European carmakers such as Renault and Peugeot Citroen, which is targeting an operating margin of six per cent 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 euros 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 selfdriving cars.

“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 chief executive Herbert Diess said.

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. Members of the board of directors of Volkswagen AG indicate the company is trying to recover from its diesel emissions scandal and invest more in electric-powered vehicles.

“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 VW brand in Germany including 6,000 temporary staff.

Many analysts and investors nonetheless welcomed the deal, sending the shares more than two per cent higher to the top of the blue-chip DAX index in early Frankfurt trading. At 1324 GMT, the stock was still trading up 0.8 per cent at 118.5 euros.

Activist hedge fund TCI, which has been critical of Volkswagen management, said it looked like a good deal if it sticks.

“As long as they are net savings — the savings are not given back by increased costs elsewhere in the organization,” said TCI partner Ben Walker.

“They’ve just to deliver now. It’s easy to talk. They now have to deliver and execute,” he added.

Labour 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.

In a further sign of its shifting focus, VW said it will build electric cars at its German factories in Zwickau and Wolfsburg.

Electric motors will be built in Kassel, and VW will start battery cell production and development in Salzgitter.