(Recasts with VW confirmation, fresh analyst comment)
By Nick Tattersall
FRANKFURT, Nov 14 (Reuters) - Europe's biggest carmaker, Volkswagen AG , said on Friday it would cut capital spending over the next five years by 11 percent, although its investment levels will remain higher than industry peers.
The cut in its budget means VW will spend nearly 31 billion euros ($37 billion) in its core automotive unit over the period, with the lion's share going towards expanding its range of cars and light trucks.
"The focus is on successor models such as the new Passat and Audi A6 as well as new models and derivatives in the Golf class and in the commercial vehicles range," VW said in a statement.
The company is renowned for having one of the highest levels of expenditure in the industry particularly after investing in luxury brands such as Bugatti, Bentley and Lamborghini at the expense of the group's core mass market business.
VW, which has signalled a tighter rein on spending under new finance chief Hans Dieter Poetsch, said its average investment ratio over the coming five years would be 6.2 percent of sales.
That represents a 0.7 percentage point improvement over the last planning round and is below levels of eight or nine percent over the past few years, but it is still higher than rivals.
"It's a step in the right direction but the spending is still above PSA Peugeot Citroen's 5.2 percent of revenues," said London-based Commerzbank analyst Adam Collins.
Poetsch said VW's modular strategy -- under which different models share groups of components -- had helped it to tighten its belt, although analysts say the company still has a complex and potentially expensive web of model plans.
VW shares were down 0.7 percent at 1224 GMT, lagging its peers slightly.
POETSCH PUTSCH
Poetsch overhauled VW's executive pay earlier this year to make managers think more carefully about investment decisions.
Investors have welcomed his desire to get to grips with overspending, particularly as the company has warned it will take a hit of several hundred million euros this year to write off some of its capitalised research and development costs, suggesting hundreds of millions of investment will never generate a return.
Analysts believe the charge is related mainly to its ill-fated Phaeton luxury saloon, an expensive project which has generated disappointing sales, and the Bentley luxury brand.
The state of Lower Saxony, where VW is based, holds a strategic stake in the firm which many say discourages it from investing in low-wage countries at the cost of German jobs.
"Any measures to get more financial control on this company can only be a good thing... but they've got other problems like are they ever going to earn any money," said one London analyst.
"Unless earnings pick up very fast in Europe, this company is going to be massively cash negative for the next few years."
VW earned more in the third quarter from financial services than it did from selling cars and has said profits will halve this year. It expects demand to improve next year but has said it will be 2005 before business is back at full throttle.
Poetsch has said he is confident that capital expenditure this year will come in at about the same level as last year, when it invested 6.73 billion euros.
It is also aiming for a flat level of spending in 2004, a target which concerns some analysts who note that costs should have been particularly high this year because of the launch of the new Golf V, VW's most important model.