VW Slashes 7,000 Jobs to Refocus on Electric Cars -- Update
14 March 2019 - 12:45AM
Dow Jones News
By William Boston
BERLIN-- Volkswagen AG, the world's biggest auto maker by sales,
will cut up to 7,000 administrative jobs over the next five years,
in the latest move highlighting how global auto makers are
scrambling to shoulder the huge costs of new technology for
electric and self-driving cars.
The company said Wednesday the job cuts will be at its namesake
VW brand, its biggest division and the source of half its revenues.
The cuts would amount to about 6% of the brand's German workforce
of 119,394 employees.
The VW brand sold 3.7 million cars last year, more than a third
of the group's total vehicle sales, but high costs are eating away
at its meager profit margins.
Volkswagen said the restructuring efforts and savings in
procurement, raw materials and other areas are expected to boost
profit by EUR5.9 billion ($6.7 billion) annually after 2023.
Volkswagen isn't the only auto maker under pressure. Last year,
General Motors Co. said it would shed up to 14,800 and shut several
factories in the U.S. and Canada, cutting costs by $4.5 billion to
free up cash to invest in electric and self-driving vehicles.
German luxury car makers BMW AG and Daimler AG, which makes
Mercedes-Benz, have cast off their decadeslong rivalry to combine
forces to develop self-driving car technology and new mobility
services such as car-sharing and ride-hailing.
The digitization of routine processes is causing an industrywide
shift, in which vehicles and manufacturing processes that have been
largely unchanged for a century are being redesigned, rendering
many jobs redundant, from the office tower to the factory
floor.
Meanwhile, auto makers are hiring armies of software programmers
and developers. The job cuts at the VW brand, for example, are
expected to be partially offset by 2,000 new hires of software
developers and engineers specialized in developing electric
vehicles.
"Our core business is still the car," said Christian Senger,
VW's newly appointed board member in charge of software
development, the first chief of software in the auto industry. "But
as we know more about the behavior of our customers, we can improve
our cars."
The changes have brought the auto industry in to direct
competition with Silicon Valley tech giants such as Alphabet Inc.'s
Google, electric car pioneer Tesla Inc. and ride-hailing behemoth
Uber Technologies Inc. Investors sizing up the competition have
depressed the share prices of conventional auto makers.
Ralf Brandstätter, the VW brand's chief operating officer, said
Wednesday it would invest EUR4.6 billion in new
information-technology equipment and systems, largely to digitize
routine manual tasks in the company's administrative offices.
The job cuts come on top of a 2016 plan, dubbed the "Pact for
the Future, " in which VW is cutting 23,000 jobs, about 19% of the
VW brand's workforce in Germany, through natural fluctuation and
early retirement.
Falling profitability has pressured VW's core brand, which
generates nearly half of the Volkswagen group's revenue, but less
than a third of its profits. The VW brand said this week that
operating return on sales fell last year to 3.8% from 4.2% in 2017,
below its target of at least 4%, partly due to heavy investment in
new technology. The company is now predicting it will achieve a 6%
margin in 2020.
"We must do considerably more in order to deal with the
challenges that are coming after 2020," Mr. Brandstätter said. "We
will increase the pace of our transformation considerably in order
to make Volkswagen fit for the electric and digital age."
These are signs of how the transformation of the automotive
industry is beginning to force its biggest players to shed fat and
consider new alliances and even mergers to shoulder the huge
financial burdens as the car becomes increasingly driven by
software rather than horsepower.
Speaking at the annual Geneva Motor Show last week, PSA Group SA
CEO Carlos Tavares predicted that the coming years would see a
major shakeout in the industry as the costs for developing new
technology separates the weak from the strong.
"The period that goes from now up to 2030 is going to be chaos,"
he said. "It's going to be extremely selective. Because not all the
companies are going to be as Darwinian as some others in terms of
adapting to the new world. Not all the companies are going to be
able to master the new technologies."
Volkswagen is determined to make the "People's Car" of the
electric age. It has created standardized technology upon which it
plans to roll out around 70 electric vehicle models across its
brands in the coming years, producing around 22 million electric
vehicles over the next decade. Nearly half of those new electric
cars will bear the VW badge, which is why Volkswagen is rushing to
shore up the VW brand's profitability.
Write to William Boston at william.boston@wsj.com
(END) Dow Jones Newswires
March 13, 2019 09:30 ET (13:30 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
Tesla (NASDAQ:TSLA)
Historical Stock Chart
From Apr 2024 to May 2024
Tesla (NASDAQ:TSLA)
Historical Stock Chart
From May 2023 to May 2024