Volkswagen, Europe's leading automaker, is mulling over beefing up its cost-saving measures within its flagship brand, VW. According to an insider tip shared by Handelsblatt, their 2023 efficiency plan demands greater focus due to the company's earnings falling short of expected benchmarks. The report hints at a deficit of around 2-3 billion euros in the projected profit enhancements. Volkswagen chose to remain tight-lipped on this matter.
The strengthened cost-cutting measures are set to be discussed at Volkswagen's (VW) regular management meeting in Isenbüttel, near Wolfsburg, on Monday, as reported by DPA news agency. During the conference last week, VW's CEO, Thomas Schäfer, had already alluded to the need for more stringent cost-saving measures in response to the subpar business performance.
New business growth is currently posing a significant challenge. To achieve the projected profit growth, expenditures will now necessitate more substantial reductions than initially anticipated.
Back in August, Schäfer had underlined the need for enhanced cost-saving measures. "We need to further decrease our fixed costs to continue our trajectory in this challenging market situation," he explained while presenting the half-year results. "The added resistance is manifest in our figures, particularly with regard to the Volkswagen brand." The existing cost-saving initiatives were insufficient, he noted at the time.
VW is aiming to drastically reduce expenditures with their 2023 efficiency plan. This fiscal year, they have set themselves the target of improving the core brand's outcome by 4 billion euros, and aiming for a 10 billion euro improvement by 2026. The return on sales is planned to increase from the current 2.3% to 6.5%. According to previous declarations, significant savings are planned for material and fixed costs. To minimize personnel expenses, Volkswagen is offering separation packages and early retirement options. The company has flatly denied the possibility of forced layoffs.
The upcoming management meeting, reported by DPA news agency, will discuss further amplifying VW's cost-saving strategies. Regarding the 2023 efficiency plan, VW's CEO, Thomas Schäfer, has acknowledged the need for more significant expenditure reductions due to the brand's sluggish new business.
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Volkswagen is implementing various cost-cutting measures to boost profitability in the face of slack demand. These measures include:
- Cost-Reduction Strategy: Volkswagen and the employee representatives have agreed on a cost-reduction strategy involving a 20% reduction in administrative jobs across the entire group. This will be achieved through termination agreements and a hiring freeze, with positions eliminated not being replaced or only in exceptional instances.[1]
- Faster Model Launches: Volkswagen is aiming to bring new models to market quicker, in 36 months instead of 50 months, which is expected to save more than 1 billion euros over the course of the planning period up to 2028.[1]
- Reduced Test Vehicles: Volkswagen is planning to reduce the number of test vehicles in Technical Development by up to 50% through digitalization and technological progress, expected to save around 400 million euros annually.[1]
- Improved Purchasing: Volkswagen aims to improve its purchasing performance, enabling savings of over 320 million euros annually.[1]
- Optimized After-Sales Business: The company is planning to optimize its after-sales business, which is expected to generate more than 250 million euros annually.[1]
- Streamlined Production: Volkswagen aims to optimize production times along the agreed location pacts, resulting in savings of over 200 million euros annually.[1]
The company also plans to reduce its workforce by 35,000 positions by 2030, primarily through voluntary measures. This process may face resistance from employees and unions, potentially resulting in operational disruptions.[1][4]
These strategies form a part of the 'Accelerate Forward/Road to 6.5' plan announced in June 2023, aiming for a 6.5% return on sales for the core brand by 2026.[1] However, achieving this goal is challenging due to fierce competition, swiftly evolving market dynamics, regulatory pressures, workforce adjustments, and financial liabilities.[1]
