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European Business Volkswagen aims to cut up to 7,000 jobs in push to increase profitability

Volkswagen will cut up to 7,000 positions, aim to boost productivity and deliver 5.9 billion euros (US$6.7 billion) of annual savings at its core VW brand by 2023, in its latest attempt to raise profitability at its top-selling division.

The plan, announced on Wednesday, comes a day after the German automaker warned it would cut jobs as it speeds up the rollout of electric cars, which are less complex to build and require fewer workers.

Volkswagen has struggled to raise profitability at the VW brand for years. Last year, the brand’s operating margin fell to 3.8 per cent, lagging peers such as Peugeot which delivered a margin of 8.4 per cent.

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The VW brand is targeting a 6 per cent margin in 2022.

Volkswagen has ruled out compulsory layoffs until 2025, but early retirement of staff working in administrative positions at the company’s headquarters in Wolfsburg, Germany, will help reduce the work force by 5,000 to 7,000, it said.

The new cost cutting drive is a continuation of Volkswagen’s 3 billion euros Zukunftspakt savings plan. So far, VW has realized around 2.4 billion euros of the planned 3 billion annual cost savings by 2020.

The 5.9 billion euro target for 2023 comes on top of the 2020 target, the company said.

At the same time, VW will create 2,000 new software jobs, as well as electronics positions in technical development, it said.

The company plans to become the world’s biggest producer of electric cars by 2025, with the VW brand alone aiming to build more than 20 models on the group’s electric vehicles platform.

The first electric car on the platform – the “ID” – will hit showrooms in 2020 and VW expects the launch edition to sell out, VW’s board member for sales Juergen Stackmann said. VW declined to say how many cars would be produced for the launch edition.

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VW will start building the ID at a factory in Zwickau, Germany, which has maximum annual production capacity of 330,000 models. Zwickau will also build electric cars for Volkswagen’s Seat and Audi brands.

After Zwickau, Volkswagen will roll out production of electric vehicles to seven other factories worldwide including two plants in China and a factory in Chattanooga, United States, VW said.

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