Volkswagen to cut another $3.4B in costs to boost margins

Volkswagen announced another $3.4 billion (3 billion euros) of cost cuts on Thursday in an effort to speed up an improvement in profit margins at its core VW brand.

Still battling to recover from a 2015 scandal over emissions test cheating, the German automaker has been cutting costs to fund an ambitious shift to electric cars and automated driving.

A key goal is to improve margins at its mass-market VW brand, its largest division by sales, but which has long lagged the profitability of rivals such as Japan’s Toyota due in part to high labor costs at its German plants.

“By 2020 we will achieve three billion euros in cost savings, and now aim for a further three billion euros by 2023,” Arno Antlitz, the board member responsible for finance at the VW brand, told a press conference in Wolfsburg, Germany.

That should help the brand reach a profit margin of at least six percent by 2022, three years earlier than previously planned, the company added.

Volkswagen said it aimed to reduce administrative expenses and take out complexity out of the brand’s model line-up, while also striving to raise the productivity of its plants by about 30 percent by 2025.

The company did not give any details about job cuts, but ruled out forced redundancies. It said VW had started talks with labour leaders about the plan and discussions were constructive.

The VW brand aims to invest more than 11 billion euros in electric vehicles, digitalisation, autonomous driving and mobility services by 2023, with the bulk earmarked for electric cars, the company said.

Volkswagen also said talks over a potential alliance with US rival Ford were going well, and that it would give an update at the beginning of 2019. The firms are exploring areas of potential cooperation including electric and autonomous cars.

Shares in Volkswagen, which also makes Audi, Porsche, Skoda and Seat cars, were down 2.1 percent at 1120 GMT, in line with a European autos index hit by worries over a fresh build-up in the Sino-US trade war.