Volkswagen to Cut Administrative Costs up to $11 Billion by 2026

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Volkswagen is set to implement major cost-cutting measures at its namesake brand. The company aims to reduce administrative staff costs by a substantial 20%, as communicated to employees through an internal memo reported by Reuters. Rather than resorting to layoffs, the strategy involves achieving the cost reduction through partial and early retirement programs.

This move is part of Volkswagen’s broader initiative to trim costs at the VW brand by 10 billion euros ($10.8 billion) by 2026. The company has been grappling with challenges such as inflation, intense competition from Asian counterparts, and high labor and energy costs in Germany. These factors have prompted Volkswagen to take substantial measures to enhance its competitiveness, especially in comparison to rivals like Tesla.

Volkswagen CEO Thomas Schaefer emphasized the necessity of operating with fewer personnel across various areas within the company. He clarified that the objective is not to burden fewer employees with more work but to eliminate outdated practices, avoid duplications, and address inefficiencies in the organization.

The cost-cutting initiatives extend beyond workforce reduction, including plans to shorten product cycles from 50 months to 3 years. Additionally, overall production times will be reduced, and a planned 800-million-euro R&D site in Wolfsburg has been scrapped, according to the internal memo.

The company’s leadership, including CEO Oliver Blume, is focused on making Volkswagen more agile and efficient. Despite the challenges faced by the automotive industry, Volkswagen’s shares experienced a 4.6% surge following the announcement, showcasing positive investor sentiment. The stock had already risen earlier due to a favorable outcome of an audit into Volkswagen’s jointly owned site in Xinjiang, China.

The broader challenges in the industry are reflected in declining production at Volkswagen’s main factory in Wolfsburg. Works council head Daniela Cavallo highlighted that production levels were still significantly below the historical average. However, she expressed confidence that both workers and management would reach an agreement on the proposed cost-cutting measures by the end of the year.

Source: Reuters


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