Although it remains mired in the “Dieselgate” emissions scandal, Volkswagen is managing to keep its head above water in terms of profitability. But its profits lag behind those of other major automakers, and so the company is planning some significant cuts.
The Volkswagen Group recently reached an agreement with German labor unions to cut 30,000 jobs from the core Volkswagen brand, reports Reuters. Unions agreed to the plan in exchange for a promise from VW that it would avoid forced redundancies until 2025. The company also promised to create 9,000 new jobs in the areas of battery production and mobility services.
The job cuts are part of a turnaround plan that will lead to an anticipated 3.7 billion euros ($3.9 billion) in savings by 2020, and lift the company’s operating margin from an estimated 2 percent for 2016 to 4 percent in 2020. That would still leave Volkswagen behind rivals like PSA Peugeot Citroen, which is targeting a 6-percent margin by 2021. But VW will likely continue spending money on the diesel scandal for fines, buybacks, recalls, and lawsuits.
Unions were reportedly pleased by the deal because it preserved a large number of jobs, and laid out a plan for jobs related to the emerging fields of electric cars and mobility services. The plan calls for VW to build its own battery packs and electric motors, keeping those jobs in-house. But the simpler nature of electric cars could still lead to job cuts: earlier this month, Volkswagen’s human resources boss said electric cars would lead to a “five-digit number” of job cuts.
VW’s plans to emphasize that electric cars and mobility services will also require a large R&D budget. Meanwhile, some analysts also believe the job cuts didn’t go deep enough. They won’t allow Volkswagen to become cost competitive with rivals like Toyota, Erik Gordon, a University of Michigan business professor, told Reuters. VW has 610,000 workers globally, but last year it built slightly fewer vehicles than Toyota, which has just 350,000 workers. VW also has a much larger lineup of brands, selling 340 models globally.
In addition to the job cuts in Germany, Volkswagen plans to cut jobs in North America, Brazil, and Argentina, although it did not provide further details. The company’s recent decision to end its successful World Rally Championship racing program is also attributed to the need to cut costs.