Volkswagen does not see “light at the end of the tunnel” for its core VW brand until five years’ time and results would remain unsatisfactory until then, the brand’s top executive told the Financial Times (FT).
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Aggressive cost-cutting – with some analysts believing up to 30,000 jobs are at risk – would mean the large problems at the carmaker would be tackled by 2008 but profitability then would still lag behind internal return targets, VW brand head Wolfgang Bernhard told the paper.
The FT noted that VW faces a key year in 2008, when it has set a pre-tax profit target of EUR5.1bn ($US6.2bn), EUR4bn more than 2004’s EUR1.1bn. To reach that, the paper, citing labour officials and company executives, noted that Bernhard is preparing a restructuring that is “more drastic than people can imagine”.
VW executives told the Financial Times that the 2008 profit goal stood but Bernhard reportedly underlined that the brand would not reach the group’s overall 9% return on capital target that year.
The paper said his comments were designed to tone down expectations of a quick turn-round – VW is hamstrung by some of the highest wages in the industry and inefficient factories where producing cars takes twice as long as at some comparable European plants.
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By GlobalDataThe FT noted that Bernd Osterloh, head of the works council, the representative body for employees, recently warned “that the number of people (who could be laid off) is far more than anybody is thinking about at the moment”.
Executives reportedly believe this is a way of preparing workers not just for the shock of mass job losses but also a possible change in the company’s wage system, under which pay is substantially higher than the German union standard.
The Financial Times said Bernhard has set a target of improving gross results by EUR7bn by 2008 through a mixture of cost-cutting and revenue increases.
But many analysts reportedly have cast doubt on the plans. “We regard the initiated action as insufficient in order to justify the demanding 2008 earnings targets,” Arndt Ellinghorst of DrKW wrote last week, according to the financial newspaper.
According to the FT, analysts say VW will also be hindered by a model line-up in which key cars will start to age next year and in 2008, slowing attempts to stem losses in two of its biggest problem markets, the US and China.
Bernhard said VW had initiated a new programme, dubbed Moonraker, to tailor cars more to individual markets such as the US, China, India and Russia in an effort to counter charges over VW’s arrogance. VW was likely to lose about EUR1bn again in the US in 2005, but hoped to narrow that figure this year, he told the Financial Times.
The VW brand, after losses in the first three quarters, should report a slightly positive full-year result, he reportedly added.
VW declined to comment on a report in Focus magazine that its supervisory board would propose a new five-year contract to Bernd Pischetsrieder, chief executive, the paper said.
