July 23, 2014 / 10:58 AM / 6 years ago

VW faces battle with workers over cost cutting plans

BERLIN (Reuters) - Volkswagen (VOWG_p.DE), Europe’s biggest carmaker, faces a battle with workers over cost cuts at its biggest car division, a central plank of its drive to meet profit margin targets.

Volkswagen Chief Executive Martin Winterkorn addresses the annual news conference in Berlin March 13, 2014. REUTERS/Tobias Schwarz

Chief executive Martin Winterkorn on Wednesday called for swift results when outlining an efficiency drive to a gathering of more than 20,000 workers at Volkswagen’s (VW) base in Wolfsburg, Germany.

“Over the short-term, we urgently need more efficiency and higher profit,” the CEO said. “Without an appropriate financial basis, any strategy must and will fail.”

Profitability gains at the VW brand are not keeping pace with surging deliveries for the group, which is set to meet a 10 million vehicle sales goal in 2014, four years early.

But Winterkorn’s plea drew a cold response from VW’s top labor representative, who blamed management for mistakes that have hindered stronger productivity growth.

“What’s now at stake is how we will together with management achieve the target” of boosting profit, VW works council chief Bernd Osterloh said.

“This will not be a walk in the park. It’s already clear now that one or two issues will be particularly hard fought.”

Winterkorn last week set out plans to steadily increase cost reductions at the VW brand to 5 billion euros ($6.7 billion) a year from 2017, as part of efforts to streamline work processes at the division which accounts for over a third of group revenue.

The VW brand is lagging a medium-term profit margin target of at least 6 percent because of fixed production and personnel costs which the group says are high relative to Japan’s Toyota Motor Corp (7203.T).

The brand’s 2013 profit margin was 2.9 percent, compared with auto division margins of 8.8 percent at Toyota and 9.5 percent at South Korea’s Hyundai Motor Co (005380.KS).

To boost efficiency, Winterkorn has urged “painful action”, such as ceasing to make low-profit cars, reining in costs of R&D as well as new factories, speeding up model launches and catering more to the needs of foreign markets.

“Management and staff at VW have had cozy ties for quite a few years. That may be coming to an end now. In difficult times, one will find out how resilient those ties are,” said Stefan Bratzel, head of the Center of Automotive Management think-tank near Cologne.

Osterloh, who as member of VW’s supervisory board has a say over decisions such as factory closures and takeover bids, urged management to refrain from taking any steps to cut labor costs and instead improve production plans to cut needless overtime.

“We’ll tackle this together after the summer break,” he said. “This won’t be possible completely without conflicts.”

($1 = 0.7422 Euros)

Reporting by Andreas Cremer.; Editing by David Holmes and Mark Potter

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