WOLFSBURG -- Volkswagen Group responded to the mounting costs from the company's emissions scandal by halting work on a design center in Germany and a paint shop in Mexico, leaving much of the biggest investment budget in the auto industry untouched.
VW will cut 1 billion euros ($1.1 billion) from its investment plan for next year, capping spending on property, plant and equipment at about 12 billion euros ($12.8 billion), down about 8 percent on its previous plan of around 13 billion euros.
VW Group CEO Matthias Mueller said construction of a new design center in the company's home town of Wolfsburg was being put on hold, saving about 100 million euros, while the construction of a paint shop in Mexico was under review.
The cuts target marginal projects, including the next generation of the slow-selling Phaeton sedan, now delayed after previously being cut to only an electric version. The Phaeton successor was due in 2019 and German media reports have said that VW is mulling closing the Dresden, Germany, factory where it is built.
"We are operating in uncertain and volatile times and are responding to this," Mueller said. "We will strictly prioritize all planned investments ... anything that is not absolutely necessary will be cancelled or postponed."
VW's supervisory board said in a statement that the company will increase spending on alternative drive technology such as electric and hybrid vehicles by 100 million euros next year compared with previous targets.
In previous years, the company has published investment plans for several years ahead. But this time VW only gave numbers for next year. That gives Mueller time to negotiate with labor leaders on more painful measures to prune a group that spans 12 brands and more than 300 models.
Bernd Osterloh, VW's powerful works council chief, said in a statement that the supervisory board would take another look at investment and capacity plans at its first meeting next year. "We will continue to keep a particularly vigilant eye on the job situation," he said. "We see risks here at individual sites, especially in the area of temporary employment."
"This is clearly just the beginning as you can’t halt everything at once," said Frank Schwope, a Hanover-based analyst at NordLB. "It’s urgently needed. The company needs to save, save, save."
VW didn’t announce plans for development spending, which totaled about 4.4 billion euros a year under its previous budget. It said investment for the group’s two Chinese joint ventures, which are self-funded, would be steady at 4.4 billion euros annually.
Prior to today's announcement, VW had more than doubled its annual investment spending since 2008. VW has space to cut capital expenditures and development costs by 10 percent, according to estimates from Evercore ISI. Arndt Ellinghorst, a London-based analyst at Evercore, said of the 8 percent cut: "It's still a huge amount of investment. It still leaves them outspending their competitors."
VW also said on Friday that Mueller would temporarily take on responsibility for personnel matters until a replacement was found for Horst Neumann, who retires at the end of November.
New board members
In a separate announcement, Volkswagen named Joerg Hofmann, the leader of the IG Metall trade union, and Johan Jaervklo of Scandinavian union IF Metall, to its supervisory board as employee representatives.
They will replace former IG Metall boss Berthold Huber and Hartmut Meine, also of IG Metall, the carmaker said.
Bloomberg and Reuters contributed to this report
