VW said to target $4 billion in cost cuts at namesake brand

Volkswagen plans to cut $4 billion in costs at its namesake VW car brand by the end of 2020 to shore up profitability and safeguard investment in future vehicle technology, according to people familiar with the matter.

German factories will account for the bulk of the savings, with a target of about $3.3 billion, said the people, who asked not to be identified as the plan is still being discussed by management and worker representatives. The cost-cutting is designed to prepare Volkswagen’s biggest unit for a fresh start as of 2021, including turnaround plans for struggling operations in the U.S. and South America, they said. Volkswagen declined to comment.

Restoring weak profit at the VW brand is key for Europe’s largest automaker to emerge from the emissions-cheating scandal that erupted a year ago. The marque, which was struggling even before the crisis, started a broader program two years ago to lift earnings by 5 billion euros by 2017, including a push to reduce vehicle variants and trim purchasing costs. Some of these initiatives are being followed-up or expanded as part of the fresh push to rein in spending, according to the people.

Since this summer, Volkswagen has been in talks with its powerful employee representatives over a so-called future pact to protect jobs and allocate production of upcoming vehicles to German factories. Workers reiterated on Thursday they won’t accept forced layoffs and insist collective bargaining agreements must remain intact, according to a letter sent to staff and obtained by Bloomberg News.

“The pact for the future will lay the foundation for a significant boost in the competitiveness” of the VW brand, Herbert Diess, the unit’s chief, told about 20,000 workers gathered at the main factory in Wolfsburg, Germany. While the carmaker has too many workers, there would be no forced layoffs, he said in a statement from Volkswagen.

The talks are complex with more than 60 company and labor officials involved. Six different tasks forces are focusing on areas like vehicle production, technical development and administration.

Pressure to reach an agreement is mounting as Volkswagen’s supervisory board plans to sign off on the company’s annual investment budget in mid-November. Delays to the future pact would risk complicating the plan, which usually outlines billions of euros of projects for the coming five years.

“We’re still quite a bit away from an agreement with the company,” the works council said.

“The future pact can still fail because significant commitments of the company are still missing,” said the letter to staff, which is signed by works council chiefs of VW’s German factories.