VW brand agrees to $11 billion cost savings push with labor leaders

Volkswagen Group and its powerful labor leaders have agreed measures to save 10 billion euros ($11 billion) to help boost low returns at the company's namesake brand.

The measures include speeding up development and production times, reducing staff costs and implementing a more efficient procurement strategy.

In a statement on Tuesday, VW set savings targets for each of these measures in a package it hopes will add up to 10 billion euros in gains by 2026 and a profit margin of 6.5 percent, up from 3.4 percent in the first nine months.

VW plans to save 320 million euros a year through better purchasing performance in its procurement, generate over 250 million euros a year through optimizing its after-sales business, and save over 200 million euros a year by improving production times.

A further 400 million euros annually would be saved by reducing the number of test vehicles used in technical development by up to 50 percent, with more testing done via digital processes.

The cost-cutting drive should yield a positive contribution of 4 billion euros ($4.4 billion) to its results in 2024, VW said.

Selective contract termination

If necessary, the carmaker could also offer selective contract termination agreements across the company, human resources board member Gunnar Kilian said, with vacated roles left unfilled to reduce total headcount -- a means of reducing the number of staff without breaking its agreement with the works council to rule out dismissals.

In a memo to staff earlier this month, the automaker said it planned to slash administrative staff costs at the VW brand by a fifth, save a billion euros by 2028 through reducing product development cycles to three years from 50 months, cut production times and scrap a planned new 800-million-euro R&D site in its home city of Wolfsburg.

The VW marque is the first of the VW Group's brands to undergo a cost-cutting drive, called 'performance programs' by executives attempting to convince investors of the carmaker's credibility and financial stability.

The automaker has already implemented a hiring freeze, laid off temporary workers and cut production shifts at its German factories as CEO Oliver Blume aims to improve earnings at VW brand, a feat made harder by weaker-than-expected demand for EVs.

The automaker is under pressure particularly in China, where it lost its market-leading position to EV maker BYD after the company’s battery-powered models struggle to get traction.

Bloomberg and Reuters contributed to this report