Volkswagen and its works council finally agrees on a massive cost-saving plan for the VW brand, marking the end of months-long negotiations. The agreement will involve a 20% reduction in administrative personnel costs without forcing any layoffs. The lion's share of savings will instead be taken from material and fixed cost reductions.
The save-all program, announced by Brand CEO Thomas Schäfer in the summer, is projected to boost earnings by 4 billion euros as early as next year, and up to 10 billion euros annually by 2026. This should increase the return on sales from the current 3.4% to a targeted 6.5%.
Cavallo, works council chairwoman, commended the agreement as ensuring job security and no wage cuts, that remain valid until 2029. Most savings will come from areas outside personnel costs, such as material and fixed costs, sales, and product development. The new model's development time will be slashed to 36 months to enable billion-euro efficiencies.
Lower Saxony's Minister President Stephan Weil applauded the agreement, emphasizing the need for timely implementation of all agreed measures. The state of Lower Saxony, holding 20% of voting rights, is Volkswagen's second-largest shareholder after the Porsche and Piëch families.
Volkswagen has not revealed the number of jobs to be impacted. Citing cost reduction rather than layoffs, the company is considering measures including partial retirement and selective termination agreements for all levels. It also intends to maintain the ongoing recruitment freeze in place since November.
Volkswagen has been on a mission to boost its bottom line for years. Coinciding with its 'Accelerate Forward/ Road to 6.5' plan, Volkswagen aims to reach a 6.5% margin for its VW passenger car brand by 2026. Cost savings will come from various strategies including reducing development cycles, cutting test vehicles, improving purchasing performance, optimizing after-sales business, and optimizing production times.
Data Enrichment:
Volkswagen has been focused on reducing its financial burden and increasing profits through various cost-cutting measures. A significant part of its savings plans centers around achieving the 6.5% target margin for its VW passenger car brand by 2026. The company envisions achieving this goal through strategies like:
- Earnings Improvement: Aiming to save over 1 billion euros by optimizing vehicle launch schedules, reducing test vehicles, enhancing procurement, and improving post-sales operations as well as production times.
- Cost Reduction Measures: Implementing an overall workforce reduction of 35,000 employees by 2030, primarily resorting to voluntary measures like early retirement programs, termination agreements, and hiring freezes.
- Compliance Measures: Meeting regulatory requirements, particularly in emissions and safety standards, to ensure compliance with European Union standards and higher financial liabilities.
By reducing costly redundancies in the adminsitrative department, cutting development timelines, and optimizing performance, Volkswagen will focus on boosting earnings while taking care of its employees' job security.
