VW brand to slash staffing costs by a fifth

Volkswagen plans to cut administrative staff costs at its namesake brand by a fifth, management told staff in an internal memo.

VW Group said in June that the VW brand was planning to make 10 billion euros ($10.8 billion) of savings and cost cuts by 2026 to help meet a return-on-sales target of 6.5 percent, up from 3.6 percent last year.

The staffing cuts will happen via partial and early retirement as opposed to layoffs, the memo said.

Like other automakers, VW has been hit by inflation, slowing demand in Europe and China, and high labor and energy costs in Germany. The automaker is also struggling to deliver a robust lineup of EVs in an increasingly competitive market after repeated stumbles at its software unit Cariad.

VW brand boss Thomas Schaefer has previously warned that high costs and low productivity are making its passenger cars uncompetitive.

"We will need to operate with fewer people in many areas at Volkswagen in the future," Schaefer told employees at a meeting in Wolfsburg on Wednesday. "This doesn't mean more work for fewer people, but rather shedding old habits and saying no to duplicating efforts and inefficiencies."

Other initiatives include reducing product cycles to 3 years from 50 months, cutting overall production times, limiting model options and trims, and scrapping a planned new 800-million-euro R&D site in Wolfsburg.

VW's challenges are reflected in falling production at the automaker's main factory in Wolfsburg, where works council head Daniela Cavallo said output was still far below the historical average.

"At the end of November, after 11 out of 12 months, we have produced 453,000 vehicles," Cavallo said.

Hopefully, Wolfsburg output will reach 500,000 units this year, she said, which is still far below the 780,000 annual average in the 2010-2020 period.

Cavallo said she was confident that workers and management would agree on the brand's cost-cutting measures by the end of December.

"We want to have finalized the key points by the end of the year," Cavallo told employees. "I'm very confident that we will succeed."

Labor representatives and officials representing the state of Lower Saxony hold more than half of the seats on VW's supervisory board, meaning their backing is needed for key strategic decisions including job cuts and factory closures.

Bloomberg and Reuters contributed to this report