Volkswagen shares have risen following Friday’s announcement of a preliminary net profit of EUR1.1bn for 2005, ahead of analysts’ expectations.
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The ‘ForMotion’ cost saving and efficiency programme made a positive contribution of EUR3.5bn to the 2005 result, reported the company, because it was able to counteract the negative earnings impact caused by market conditions.
But the company warned that further restructuring is needed to be able to compete effectively on a global basis. In particular, Dr. Bernd Pischetsrieder, Chairman of the Board of Management of Volkswagen AG said that, “the export capability of the German VW plants is not ensured. We continue to incur significant losses on cars exported from Germany to the USA. In order to ensure a secure long term future for the Group, we must act rapidly and determinedly to eliminate the problems that we face.”
The company is targeting German plants, which are currently loss making, and warned that up to 20,000 employees could be affected. The traditional German plants were reported to have generated a loss of ‘several hundred million’ euros.
In an internal employee publication, “Autogramm”, Volkswagen brand chief executive Wolfgang Bernard, threatened plant closures if partners could not be found to take over the running of certain component operations, although he later clarified to news agencies that there are no plans to sell plants. Instead component production would be ‘reorganised’.
According to the Financial Times Deutschland, Bernard said that some of the company’s component plants were 50% less productive than the competition. He also said that globally Volkswagen had 20% excess capacity. Bernard is looking for productivity improvements of 30% over the next three years.
According to the German Press Agency, Head of the Volkswagen works council Bernd Osterloh condemnded Bernard’s management style in the same publication, saying that threatening plant closures is unconstructive when there are many other ways to make these operations fit again.
