VW brand to slash administrative expenses in $11 billion cost-cutting drive

BERLIN/FRANKFURT — Volkswagen plans to slash administrative staff costs at its namesake brand by a fifth, management told staff in a memo seen by Reuters on Wednesday, adding this would happen via partial and early retirement as opposed to layoffs.

The target is part of Volkswagen’s push to cut costs at the VW brand by 10 billion euros ($10.8 billion) by 2026, having previously warned that high costs and low productivity were making its passenger cars uncompetitive.

Like other carmakers, Volkswagen has been hit by inflation, fierce competition from Asia and high labour and energy costs in Germany, requiring massive cost cuts to not fall further behind its rivals, including Tesla.

“What is crystal clear is that we will need to operate with fewer people in many areas at Volkswagen in the future,” VW brand CEO Thomas Schaefer told employees according to the internal memo. “This doesn’t mean more work for fewer people, but rather shedding old habits and saying no to duplicating efforts and inefficiencies.”

Other initiatives include reducing product cycles to 3 years from 50 months, cutting overall production times as well as scrapping a planned new 800-million-euro R&D site in Wolfsburg, the memo said.

Shares in Volkswagen, which have underperformed the broader auto sector this year, extended gains following the news to trade 4.6% higher at 1406 GMT. The stock had risen earlier following the positive outcome of an audit into Volkswagen’s jointly owned site in Xinjiang, China.

Volkswagen Group CEO Oliver Blume is trying to make the sprawling carmaker, which apart from the VW brand also includes the Audi and Lamborghini brands as well as a majority stake in Porsche AG, faster and more efficient.

The industry’s current challenges are reflected in falling production at Volkswagen’s main factory in Wolfsburg, where works council head Daniela Cavallo said output was still far below the historical average.

“At the end of November, after 11 out of 12 months, we have produced 453,000 vehicles,” Cavallo said, adding one could only hope that the group would come within sight of the 500,000 mark, which is still far below the 780,000 annual average in the 2010-2020 period.

Cavallo said she was confident that workers and management would agree on the brand’s cost-cutting measures by the end of the year.