Volkswagen Job Cuts to Help Save Flagship Brand $4.37 Billion Next Year -- 2nd Update

By David Sachs and Joshua Kirby

Volkswagen has reached a deal with workers that will help its flagship brand save up to 4 billion euros ($4.37 billion) next year by reducing the size of its workforce.

The German carmaker said Tuesday that it aims to cut administrative staff costs at the Volkswagen brand by 20% as part of a restructuring meant to slash group costs by EUR10 billion. With the move, the brand aims to reach a 6.5% profitability target by 2026 and contribute earnings of EUR10 billion by that same year, it said.

Volkswagen won't carry out any compulsory redundancies, part of a deal with workers excluding such measures until 2029. The brand will instead extend its partial retirement plan to staff born in 1967 and maintain a hiring freeze, it said. Volkswagen said it isn't targeting a specific number of job reductions, but rather the number necessary to reach the 20% savings target.

Staff reductions will start in January, the carmaker said. Other measures include cuts to development times and procurement improvements.

High labor costs have long been seen as a headache for Volkswagen. Cost-cutting is urgent at the group, Citi analysts said after reports of the job-reduction scheme were first set out in the German press last month. "VW needs to act urgently," Citi said. "It is starting to act more urgently."

A week ago, HSBC analysts said in a note that progress on cost cutting has been slow, suggesting tough negotiations with labor unions.

Analysts expect the Volkswagen brand's earnings before interest and taxes to come in at EUR3.06 billion this year before falling to EUR2.28 billion in 2024, according to consensus estimates provided by FactSet. Last year, the brand posted EBIT of EUR2.65 billion.

The job cuts come as the United Auto Workers union in the U.S. is recruiting workers at the company's Tennessee plant to unionize for higher wages.

Write to David Sachs at [e-mail] and to Joshua Kirby at [e-mail]; @joshualeokirby

(END) Dow Jones Newswires

December 19, 2023 11:46 ET (16:46 GMT)

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