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Volkswagen brand to cut up to 7,000 positions under €5.9B annual savings plan

Volkswagen AG 's namesake brand said it will cut up to 7,000 positions as part of a five-year plan to save €5.9 billion annually and raise its operating margin to 6% by 2023.

The company intends to use the cost savings under the plan, which also includes measures such as reducing operational and product complexity and material costs, to implement its digital transformation and boost its electrification efforts.

The cost savings plan is expected to gradually start delivering results from 2019 to 2022 and achieve a sustained contribution of €5.9 billion annually from 2023, the company said.

Under the "Pack for the Future" plan, the brand said it has earmarked €19 billion to electrify its cars and digitalize the company through 2023, €8 billion more than initially planned.

The brand plans to build more than 10 million electric vehicles by 2029. It will use its modular electric platform to roll out an electric compact car ID in 2020. The prebooking for the car will begin May 8. VW is also looking to outsource its modular electric vehicle platform and recently teamed up with German startup e.GO Mobile as the first platform partner.

The company said that its electrification plan would be key to comply with stricter emissions regulations. The "dieselgate" emissions cheating scandal has reportedly cost the carmaker about €3.6 billion in 2018 and €28 billion since 2015.

VW said it will invest €4.6 billion in IT systems to automate processes, resulting in 5,000 and 7,000 redundancies. The brand said the company aims to eliminate headcount through natural attrition and early retirement, but compulsory layoffs may still come into effect in 2025.

The company executives said in a press conference that more than 9,000 employees have already signed early retirement contracts and will leave the company by 2020 at the latest. Non-staff overheads and personnel requirements in administration will be cut by 15% each, the company said.

The brand, however, is in the process of hiring 2,700 people in the future-oriented business areas such as software development, connectivity and new mobility solutions.

On March 13, the brand reported a 2.2% year-over-year fall in February worldwide deliveries of 398,100 vehicles as Jürgen Stackmann, VW sales board member, said the situation in its largest market, China, "remains the greatest uncertainty" for the company in 2019. Deliveries in Europe rose 1.8% year over year to 130,900 units in the month, offset by an 8.6% decrease in Asia-Pacific deliveries of 183,900 vehicles.

The brand said it is targeting an operating margin in the range of 4% to 5% and a growth of up to 5% in sales revenue for the current fiscal year despite the subdued economic outlook in key markets. The brand's deliveries are expected to be on a similar level to 2018.

On March 12, VW Group reported a 0.3% slump in operating profit before special items in the fourth quarter of 2018 from the same period a year earlier.