While the company is mired in the “Dieselgate emissions scandal”, Volkswagen is managing to stay afloat in terms of profitability. While its profits lags behind those of other major automakers, the company is now planning significant cuts.
The Volkswagen Group recently reached an agreement with German labour unions to cut 30,000 jobs from the core Volkswagen brand. The Unions agreed to the plan, in lieu of the promise that the automaker will not have forced redundancies until 2025. The company also promised to create 9,000 new jobs in the areas of mobility services and battery production.
These job cuts to be initiated are a part of turnaround plan which will result in cost savings anticipated to be $3.7 billion by 2020. This move will lift the company’s operating margin from 2 percent in 2016 to 4 percent in 2020. It would still leave Volkswagen behind rivals such as PSA Peugeot Citroen, which is targeting a 6-percent margin by 2021.
Meanwhile, the company will continue spending money on buybacks, diesel scandal fines and lawsuits. The unions were reportedly pleased by the deal, as it is large number of jobs being preserved in growing segments of electric cars and mobility services in the industry. The plan calls for VW to build its own electric motors and battery packs, thus keeping those jobs in-house.
Earlier this month, Volkswagen’s human resources boss said electric cars would lead to a “five-digit number” of job cuts. Electric cars and battery packs would require significant investments into R&D. Some analysts are of the opinion that the jobs slashed didn’t go well enough and did not allow the company to be cost-competitive with rivals such as Toyota and others.
VW has 610,000 workers globally and a much larger line-up of brands selling 340 models globally. In addition to the job cuts in Germany, Volkwagen also plans to initiate job cuts in North America, Brazil and Argentina, Digital Trends reports. The company did not divulge any further details on the same. Its recent decision to end its successful World Rally Championship racing program is also attributed to the need to cut costs.
Volkswagen is comprehensively repositioning itself. The Board of Management of the Volkswagen brand has decided on the TRANSFORM 2025+ program which will set the course for the brand over the next decade and beyond. The new strategy focuses on clearer brand positioning across the various regions and segments, backed by significant improvements in efficiency and productivity. At the same time, the brand will be making massive investments in e-mobility and connectivity.
In China, Volkswagen intends to strengthen the “top of volume” position it has already reached. This will be achieved by an SUV offensive and by rapidly launching electric vehicles. In China, Volkswagen also aims to benefit from the potential in the strongly growing economy segment. Work has already started on the development of appropriate models. In other major markets such as India, South America and Russia, Volkswagen also intends to develop the economy segment.
“From 2020, we will be launching our major e-mobility offensive. As a volume manufacturer, we intend to play a key role in the breakthrough of the electric car. We are not aiming for niche products but for the heart of the automobile market. By 2025, we want to sell a million electric cars per year and to be the world market leader in e-mobility. Our future electric cars will be the new trademark of Volkswagen,” said Dr Herbert Diess, Chairman of the Volkswagen brand Board of Management.