Volkswagen group’s latest E2 billion cost-cutting program is under attack by critics as too small and not directed at VW’s most glaring problems, reports Automotive News Europe.
The VW ForMotion cost-reduction program, announced by CEO Bernd Pischetsrieder at VW’s annual meeting this month, follows an earlier E2 billion effort. It includes eliminating 5,000 jobs by 2005, reducing production costs by E800 million this year and another E800 million next year and lowering capital spending from 8 percent of revenue to 7 percent of revenue.
“We must be able to build a large number of new models, without raising development cost,” Pichetsrieder said.
Brokerage house Morgan Stanley analyzed Pischetsrieder’s measures as being “more of a defensive nature,” a reaction to initial consumer resistance to the higher price of VW’s new-generation Golf. “It seems that VW wants to offset the Golf V pricing problem with cost trimming,” said Adam Jonas, a senior analyst at Morgan Stanley. “But slashing 1.5 percent of your workforce is not a real restructuring.” He noted that 5,000 jobs are less than half the 12,000 employees VW has added since the end of 2002.
Analysts identified the heavy development costs of a series of high-end products launched by former CEO Ferdinand Piëch as a profit drain for Pischetsrieder’s company.
“In light of demographic changes, Piëch’s choice to shift upmarket was legitimate,” said Nigel Griffiths, senior analyst at Global Insight in London. “But the initial focus on luxury models such as the slow-selling Phaeton did not work.”
A VW board member acknowledged the Phaeton’s sales problems. “This model is selling even less than we had expected in our worst-case projections,” the board member said.
But Pischetsrieder is not expected to kill the Phaeton, or the much-delayed Bugatti supercar.
“As long as Piëch is looking over his shoulder in his role as chairman of the supervisory board, Pischetsrieder won’t be able to cut the model portfolio where needed,” said a VW manager who did not want to be identified.