Volkswagen Brand Making Deep Cuts in Operating Costs
The German automaker expects to reduce costs by $11 billion a year by 2026.
Volkswagen confirms it is initiating sweeping cost-cutting measures aimed at achieving global operating savings of up to $4.4 billion in the coming year in a move it says will significantly improve its competitiveness as it pivots from a lineup dominated by internal-combustion-engine models to one predominately of electric models.
By 2026, the savings are expected to reach up to $11 billion annually, with the German automaker targeting a long-term return on investment of 6.5%.
The measures apply to the Volkswagen brand but also are expected to help bolster the efficiency of the Volkswagen Group as a whole, as other subsidiaries tap into savings from administration, production, purchasing and engineering.
“This is the most comprehensive cost-cutting plan Volkswagen has ever instigated,” VW CEO Thomas Schäfer (pictured, below left) says, adding, “It is important to withstand the increasingly tough competition in an extremely challenging market environment.”
Thomas Schafer VW CEO_4
After more than six months of negotiations with managers and union leaders, VW says it plans to reduce administrative costs by up to 20% from current levels. 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 the automaker’s works council, Daniela Cavallo, says there will be no employee layoffs for operational reasons.
Additionally, VW is targeting significant reductions in material, manufacturing, and fixed costs. The world’s second-largest automaker 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 $1.1 billion alone by 2028.
By relying more heavily on digital simulation in the development of new models, for example, the number of road-going prototypes constructed by VW is planned to be reduced by up to 50%. This measure, to name one VW has identified, will result in annual savings of up to $440 million.
Confirmation of VW’s cost-cutting measures comes after Schäfer suggested “all is at stake” during an internal meeting held in July. At the time, he told top-level managers, “the roof is on fire” in underscoring the task the company faces in cutting costs, adding greater levels of efficiency and improving its competitiveness against established legacy automakers and new electric vehicle start-ups.
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