November 3, 2016 / 9:03 AM / 3 years ago

VW board to discuss cost cuts on Friday, deal may be weeks away

HAMBURG/BERLIN (Reuters) - Volkswagen’s (VOWG_p.DE) leaders will meet on Friday to discuss prospects for cost cuts and investments, the carmaker’s second-largest shareholder said, although a final deal between management and labor leaders may still be weeks away.

A Volkswagen logo is pictured at Volkswagen's headquarters in Wolfsburg, Germany, April 22, 2016. REUTERS/Hannibal Hanschke/File Photo

Volkswagen (VW) is under pressure to make cuts at high-cost operations in Germany to help to pay for a shift to electric cars and self-driving vehicles while still dealing with billions of euros in costs from its diesel emissions scandal.

VW has earmarked a meeting of its supervisory board on Nov. 18 to approve spending on plants, equipment and models across the multi-brand group until 2021, but needs prior agreement with the works council on restructuring and jobs.

The sheer number of issues facing the 20-member panel including budget goals, job cuts, model strategy and the high cost base of German factories make Friday’s additional meeting necessary, two sources close to the supervisory board said.

But if there is no deal on cost cuts and strategy by Nov. 18, VW will be forced to postpone ratification of its group budget, one source said.

“As is known, there are currently talks between management and the works council about a future pact,” Stephan Weil, premier of the state of Lower Saxony, VW’s second largest shareholder told reporters in Hamburg late on Wednesday, adding “not too much” should be expected from Friday’s board meeting.

The shares paid little attention and were trading up 0.3 percent at 119.9 euros at 1042 ET.


Analysts and investors say key to a further recovery of Europe’s largest automotive group will be the company’s ability to bring down costs which have crippled the competitiveness of the core VW brand which lags far behind rivals such as Toyota (7203.T) and PSE Peugeot Citroen (PEUP.PA).

“What is currently debated amongst investors is whether management is sufficiently committed and has the freedom to address the necessary changes,” said Evercore ISI analyst Arndt Ellinghorst who has a “buy” recommendation on the stock.

The two sides are seeking to strike a deal that will form part of the German carmaker’s efforts to revive its fortunes more than a year after the emissions scandal broke.

Herbert Diess, a former BMW (BMWG.DE) executive who has led the VW brand since July 2015 wants to cut costs by 3.7 billion euros ($4.10 billion) by 2021, three times the division’s 1.2 billion nine-month profit.

But VW’s powerful works council, whose members occupy almost half the seats on the supervisory board, have said they will not back cuts without a commitment from management to fixed targets and quotas for products, output and investment.

VW is embracing zero-emission technology and wants to launch more than 30 electric cars by 2025, but it has yet to assign production of electric models to factories as well as spell out plans for battery assembly, one person familiar with the talks said.

“We have made good progress but there are still major issues to be discussed,” the person said.

Attempts by management to deliver cost cuts have long been thwarted by labor representatives keen to protect investment and jobs.

VW labor boss Bernd Osterloh opposes any layoffs and has only agreed to cut jobs by waiting for staff to retire, a move that he said could shrink the workforce by up to 25,000 people over the next decade.

($1 = 0.9024 euros)

Reporting by Jan Schwartz and Andreas Cremer; Writing by Andreas Cremer; Editing by Victoria Bryan/Keith Weir

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