Volkswagen says that management and employee representatives have reached agreement on key points to streamline the company and optimise costs, following ‘intensive negotiations’.

VW says a performance program is designed to optimize costs and performance in order to achieve a 6.5 percent profitability target for 2026.

The company said under the agreement with the works council, there are new policies for staff reduction measures aimed to reduce personnel costs – especially in the administrative units – by 20 percent.

The objective of the three-year program is to secure the Volkswagen Group’s core brand competitiveness, ensure it is future-proof and sustainable in the long term. The Volkswagen brand aims to make a positive earnings contribution totalling ten billion euros by 2026, also to offset negative  effects such as inflation and higher raw material costs. The operating return on sales is expected to improve sustainably to 6.5 percent in 2026. The Volkswagen brand projects that the program will deliver positive earnings contributions of up to four billion euros as early as 2024.

The program’s three focus areas are: optimizing material and product costs, reducing fixed and manufacturing costs and increasing revenues. The company and the employee representatives have also reached agreement on staff reduction measures to cut personnel and labour costs. These measures will apply throughout Volkswagen AG. As such, from January 2024 the company will extend its partial retirement schemes to all employees born in 1967 (and for severely handicapped employees born in 1968), to reduce administrative staff costs in particular.

VW also said the current hiring freeze and access freeze to the Tarif Plus salary group will continue until further notice.

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By GlobalData

Thomas Schäfer, CEO of the Volkswagen Passenger Cars brand and Group Board Member responsible for the Core brand group, said: “With its current and future car models, the Volkswagen brand is on track with executing on its strategy. We will now strengthen our economic foundation to support our success in years to come. This will boost our efforts to make Volkswagen the world’s leading volume brand. In recent weeks we’ve made good progress in detailing the most comprehensive program the brand has ever launched. The precise contributions for all the action areas have been defined, the measures have been agreed and are already being implemented. Our efforts will in part start to bear fruit as early as 2024. This is crucial if we are to withstand the increasingly tough competition in extremely challenging market conditions. The agreement with the employee representatives is key to be able to rapidly advance on our chosen path. It is testament to how much commitment, solidarity and innovation are embedded in the Volkswagen brand and present in our teams.”

Group Chief Human Resources Officer Gunnar Kilian said: “With the agreement on the key measures we are taking a decisive step to move Volkswagen back to a leadership position. This requires not only structural but also personnel reduction measures. As a leading employer, it goes without saying that our actions will be socially responsible. In addition to the company’s hiring freeze and stabilization of higher pay grades in the Tarif Plus bracket, which will continue, we  agreed with the employee representatives to extend our partial retirement option to all employees born in 1967, thereby reducing the workforce as much as possible along the demographic curve, especially in the administrative units of Volkswagen AG. We will also selectively offer termination agreements at all levels, if necessary. The agreement reached will give us the required flexibility from 2024 to safeguard profitability and long-term job security.”

General Works Council Chairwoman Daniela Cavallo said: “We expect 2024 to be a very challenging year, especially for our volume brands. In defining the key points for the performance program, we have now created the basis for ambitious improvements at the right time. The path we have embarked on together will make us more competitive long term without this impacting unilaterally on our workforce. Reducing collectively agreed wages or impacting agreed job security was no option for us. The billion-euro improvements we are now targeting show quite clearly which impactful tools are available to our core brand to unlock further efficiency gains within our strong Group network. We emphatically welcome the fact that we will systematically and consistently offer the attractive partial retirement scheme in the future. However, we will continue to ensure that processes, structures and tasks actually become easier and  faster, because these efforts must not increase employees’ workload. We will also closely monitor the further refinement of the targets for the core brand and its divisions in the coming months.”

From left: Gunnar Kilian, Daniela Cavallo and Thomas Schäfer