Volkswagen to cut 5,000 Jobs.

Volkswagen cuts 5,000 jobs amid `lousy' profit outlook Firm targets $3.6 billion in savings

WOLFSBURG, Germany—German car maker Volkswagen AG announced plans yesterday to slash 5,000 jobs as part of a new cost-cutting drive as it warned of a "lousy" first quarter on top of last year's slump in profits.

VW also warned that a goal of beating last year's operating profit before special items was ambitious, despite hefty cutbacks and the key launch of its Golf V hatchback.

VW said the new efficiency program should reap an extra 2.2 billion euros ($3.6 billion Canadian) in savings by the end of 2005 — on top of 2 billion euros already targeted for 2004 and 2005 together. Half of the planned job cuts will be in Germany, it said.

Europe's largest car maker said it had gained market share in the first two months of 2004, but was downbeat on the first quarter's performance compared with the same period in 2003, adding that there were no signs of an economic pick-up.

VW shares closed down 3.1 per cent at 38.2 euros, consolidating its position as Germany's worst performing blue-chip stock in 2004. VW has fallen 13 per cent this year against a 3 per cent rise on Frankfurt's DAX index.

"Today's news is a shock," said Gerald Roessel, a fund manager at Invesco Asset Management in Frankfurt. "The negative outlook has disappointed the market again."

Volkswagen last month posted a 48 per cent decline in 2003 operating profit to 2.49 billion euros, despite marginal rises in both car sales and revenues.

The company, whose new Golf model has been criticized as being overpriced, explained yesterday that growing pricing pressure, a weak economy and unfavourable exchange rates meant topping last year's operating profit would be a stretch.

However, VW chief executive Bernd Pischetsrieder, speaking at the group's annual news conference, ruled out an operating loss in the first quarter despite a 6 per cent fall in vehicle sales in January and February.

Volkswagen said it aimed to cut product costs by the equivalent of $1.3 billion (Canadian), one-off expenditures by $410 million and overhead costs by another $980 million.

An improved sales performance would contribute another $490 million while improvements at financial services, commercial vehicles and foreign sales subsidiaries would provide an additional $410 million, VW said. The gains would total $3.6 billion, or $2.2 billion euros. The job cuts would affect staff in support operations including warehousing and administration and not those directly involved in auto production, it said.

VW management has come under criticism — including from supervisory board members — after a venture upmarket that has so far failed to pay off and has eaten into VW's cash reserves.

Investing in cars such as the 1,000-horsepower Bugatti Veyron, the Bentley Continental GT and VW's own top-of-the-range Phaeton have distracted attention from traditional money spinners such as the more humble Golf hatchback, critics say.

I think Volkswagen brought it upon itself by de-emphasizing its bread and butter products like the Golf and Beetle hatchbacks along with its Jetta and Passat sedans. Who the heck has the money to blow on a $94,000 Phaeton? They need their heads checked in Wolfsburg.

2 posted on 03/10/2004 12:02:19 AM PST by goldstategop (In Memory Of A Dearly Beloved Friend Who Lives On In My Heart Forever)

Not only that, their production values and quality control have taken a serious nosedive.

I haven't had a major problem with my VW New Beetle. To be honest, I can't speak for other owners.

4 posted on 03/10/2004 3:51:30 AM PST by goldstategop (In Memory Of A Dearly Beloved Friend Who Lives On In My Heart Forever)

Volksagen really a lost it's direction - which was practical, efficient, fun to drive, highly affordable transpotation. I'm still driving and loving my '85 Scirocco and would love to replace it with another VW, but when I look at the new ones, they look ok at first, but don't seem able to compete on a value basis.

Agreed. Their mainstay has always been affordable transportation for the masses. It makes no sense for them to compete with their upscale sister Audi and Porsche divisions for the upper class market segment.

6 posted on 03/10/2004 4:28:22 AM PST by goldstategop (In Memory Of A Dearly Beloved Friend Who Lives On In My Heart Forever)

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