VW to suspend production at showcase Dresden plant in 2016

BERLIN (Reuters) - Volkswagen VOWG_p.DE will suspend production at its small showcase factory in the German city of Dresden next year as the carmaker alters its model strategy to cut costs in the wake of the emissions test scandal.

VW said in October it would discontinue production of the premium Phaeton saloon, which is built at the glass-walled plant in the eastern state of Saxony. The model - a pet project of former chairman Ferdinand Piech which cost more than 1 billion euros ($1.1 billion) to develop - has never met sales targets since coming to market in 2002.

Production of the Phaeton, assembled by 300 of the Dresden plant’s 500 workers, will end in late March. The site, the smallest of VW’s 10 German factories, will then be reconfigured for about a year to prepare for producing an all-electric Phaeton by about 2019.

“Production in Dresden will be suspended during the restructuring phase,” Jens Rothe, head of the works council of VW’s operations in Saxony, said on Wednesday, adding that the plant would be awarded a new product for when it reopens, ensuring “employment will in future be secured on today’s level”.

VW has pledged to expand its offerings of hybrid and all-electric cars as its rigging of U.S. diesel emissions tests is seen by analysts as casting a shadow over the entire diesel vehicle industry.

VW said on Wednesday that, as planned, it would start modifying millions of diesel cars at the end of January to ensure they met emissions regulations. The plan involves recalling 8.5 million cars across European Union nations, including 2.4 million in Germany.

Analysts have long expected cutbacks in Dresden where output of the most expensive VW-badged model has fallen to about eight cars per day due to weak demand. Manufacturing areas of the plant have all-parquet floors with workers wearing white uniforms, and sometimes even white gloves as they assemble cars by hand.

The planned production shutdown, announced at a staff gathering, ties in with plans by Europe’s largest automaker to cut about 600 temporary jobs next year at another Saxon plant in Zwickau.

Rothe said production staff in Dresden affected by the shutdown will need to commute to Zwickau, about 120 km (75 miles) west of Dresden, where VW builds the Golf hatchback and the Passat saloon.

Labour representatives at VW’s Porsche arm are in talks with the sports-car manufacturer on offering at least some of the temporary workers from Zwickau the chance of employment at Porsche’s two German sites.

Reporting by Andreas Cremer; editing by David Stamp