Volkswagen has confirmed it is instigating sweeping cost-cutting measures aimed at bringing global operating savings of up to €4 billion (£3.5bn) in the coming year.
The company says these measures will significantly improve its competitiveness as it pivots from a line-up consisting mostly of internal-combustion-engine models to one predominately of electric models.
By 2026, the savings are expected to reach up to €10bn (£8.6bn) annually, with the German car maker targeting a long-term return on investment of 6.5%.
The measures apply specifically to the Volkswagen brand, but they are also expected to help bolster the efficiency of the Volkswagen Group as a whole, as other subsidiaries tap into savings, both on an administrative and production level.
“This is the most comprehensive cost-cutting plan Volkswagen has ever instigated,” said Volkswagen CEO Thomas Schäfer, adding: “It is important to withstand the increasingly tough competition in an extremely challenging market environment.”
After more than six months of negotiations with managers and union bosses, Volkswagen says it plans to reduce administrative costs by up to 20% compared with those today. The option for partial and early retirement will be extended to a larger number of workers, and a hiring freeze put into place in November will be extended indefinitely.
Laying out the savings plans, the head of its works' council, Daniela Cavallo, said there will be no employee lay-offs due to operational reasons.
Additionally, Volkswagen is targeting a significant reduction in material, manufacturing and fixed costs. The world’s second-largest car maker by production volume says it plans to make good on earlier plans to reduce the development time of new models from 50 to 36 months – a measure that is expected to save up to €1bn (£860 million) alone by 2028.
By relying more heavily on digital simulation in the development of new models, the number of road-going prototypes constructed by Volkswagen is also planned to be reduced by up to 50%. This will result in annual savings of up to €400m (£350m), it says.
Confirmation of the cost-cutting measures at Volkswagen comes after Schäfer suggested “all is at stake” during an internal meeting held in July this year. At the time, he told top-level managers “the roof is on fire” in a bid to make plain the task the company faces in improving its competitiveness against established legacy car makers and new electric vehicle start-ups.
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