On Friday, the company announced that it plans to cut 30,000 jobs by 2020, with 23,000 of those layoffs affecting employees in Germany—and all coming through attrition.
The decision is not only a plan to boost the VW’s profits; it’s also part a rebranding strategy. The New York Times reported that the move aims to “improve profitability and shift resources and investment to electric-powered vehicles and digital services.”
The turnaround plan announced on Friday will lead to 3.7 billion euros ($3.9 billion) in annual efficiency gains and lift the VW brand's operating margin to 4 percent by 2020, from an expected 2 percent this year.
That target still remains below rival European carmakers such as Renault (RENA.PA) and Peugeot Citroen (PEUP.PA), which are targeting an operating margin of 6 percent in 2021.
The announcement is a dramatic move for VW, which has been struggling to save its brand after news of its emissions-evasion scandal broke. VW has been ordered to pay roughly $15 billion to authorities and vehicle owners in the United States—a portion of the billions the crisis has cost the company worldwide.
VW’s chief executive, Matthias Mueller, said the move was “the biggest reform package in the history of [VW’s] core brand.”
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Herbert Diess, the head of the VW brand, said the cuts would make the carmaker “leaner and more efficient”. The company intends to shift more investment and resources into developing electric cars and wants to launch 30 electric-powered vehicles by 2025.
“It’s a major step forward and undoubtedly one of the biggest in the history of the company,” Diess said. “I am very sorry for those affected, but the situation of the brand at the moment gives us little room for manoeuvre.
“We are tackling the problems at the root, even if it’s painful. Many didn’t think we could do it. Today, we have shown that Volkswagen can and will change.”
The cuts also signify a necessary change for a company that must continue to innovate to stay ahead of its competition.
No-one in Germany will be forced out - early retirement is likely to provide a large portion of the cuts. And VW is creating 9,000 'future proof' positions as part of a major investment in new technologies. Many workers will simply move into new posts.
What this plan really represents is a culture shift at Volkswagen. Even before the emissions scandal, it was clear the core brand in the group was underperforming, with profit margins well below those of its rivals.
To make the job cuts, the company has cut a deal with its powerful worker representatives. Under the terms of the deal, Volkswagen has agreed to keep much of the future investment in new technology in Germany and to rely on voluntary departures such as early retirement, with no firings.
Top employee representative Bernd Osterloh said "the next generation of electric vehicles will be made here in Germany, not abroad."
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