WOLFSBURG, Germany (Reuters) – Volkswagen will cut jobs as it speeds up the rollout of less labor-intensive electric cars and battles to reverse a slide in profit margins, the German carmaker said on Tuesday.
The company said it planned to launch almost 70 new electric models by 2028, aiming to put itself at the forefront of the industry’s shift to zero-emissions driving following the 2015 scandal over its cheating of U.S. diesel emissions tests.
However, it said investments to retool factories, as well as adverse currency moves and a sales slowdown triggered by new emissions certification tests, led to a fall in operating margins at its VW, Skoda, Audi and Porsche marques last year.
The group said it would respond by aligning management pay and bonuses more closely with profitability, cutting manufacturing complexity and reducing headcount by an unspecified amount.
The margin at its top-selling VW brand slipped to 3.8 percent last year from 4.2 percent in 2017.
“Despite all the rhetoric, the opportunity to reduce an historically high fixed cost base, 2018 actually saw a new high,” Evercore ISI analysts said. “This is unacceptable.”
Volkswagen Chief Executive Herbert Diess said it had not been possible to strike a deal with unions to raise profitability at the VW brand in 2018. The group is now focusing on cost cuts at the VW brand and Audi, it said.
“Labour cost is a big concern for us. It’s part of the dispute we are having currently with the union. Our plan was to improve productivity and decrease costs which didn’t work out in 2018,” Diess told analysts after the company’s annual results.
Volkswagen is preparing to roll out a new compact electric car, known as the ID, in 2020 as part of a drive that it expects will see it building 22 million electric cars by 2028 – despite uncertainty about the level of demand for such vehicles.
AUDI CHALLENGES
“The reality is that building an electric car involves some 30 percent less effort than one powered by an internal combustion engine,” Diess said. “That means we need to make job cuts.”
The VW brand has brought forward its target of achieving a return on sales of 6 percent to 2022, but this will also involve cutting jobs, the company said.
The brand has ruled out compulsory redundancies until 2025 and is counting on natural attrition and voluntary retirements.
In addition, the group is raising efficiency in production. The VW brand has reduced the number of its model variants by 25 percent. At Audi, the drop is 30 percent.
Volkswagen released detailed 2018 results after announcing some figures last month, when it said group operating profit rose 0.7 percent to 13.92 billion euros ($15.8 billion), below the 14.53 billion euros forecast in a poll.
Audi and Porsche made up the lion’s share of group operating profit – 4.7 billion euros and 4.1 billion euros respectively, before one-off items. The VW brand contributed 3.2 billion.
But Audi’s profitability slipped, due to a 1.2 billion euros diesel-related charge and delays getting its vehicles to conform to a stricter emissions testing standard known as WLTP.
“Audi was hit particularly hard. It will probably be the end of the first quarter before all variants are available again,” Diess said.
“WLTP will continue to be a challenge in 2019. There could be some temporary restrictions once again, but much less extensive than in 2019.”
Volkswagen stuck to its forecast for revenue to grow up to 5 percent this year, and for a group operating return on sales of 6.5-7.5 percent.
The luxury Bentley brand plunged to an operating loss of 288 million euros last year, from a profit of 55 million a year earlier, hit by delays ramping up production of the new Continental GT and exchange rate effects.
Volkswagen said it was still dealing with the fallout from its 2015 emissions cheating, which has cost it more than 27 billion euros so far.
At 1305 GMT, its shares were down 0.8 percent at 145.52 euros.
(This story corrects date in second paragraph to 2028)
Reporting by Edward Taylor; Editing by Keith Weir and Mark Potter