Job losses continue to ripple through the German auto industry, as Volkswagen announced on Friday that it planned to eliminate up to 20,000 jobs in the next three years.
The reductions are part of a program to streamline Volkswagen, which has been struggling with a stagnant home market, a fading presence in the US and fierce new competition in China.
Volkswagen delivered this downbeat news even as it said it had begun to reap dividends from its last cost-cutting campaign. It reported a preliminary net profit of 1.1 billion euros (US$1.3 billion) for last year, an increase of 61 percent over the previous year and well above the expectations of analysts.
PHOTO: EPA
Analysts expect Volkswagen to achieve the bulk of these cuts through voluntary measures, including buyouts and early retirements. In a 2004 agreement with its union, the company pledged not to lay off workers until 2011 in return for a freeze in wages and concessions in work rules.
Volkswagen, which employs 103,000 people in Germany, has warned about job losses for months, but until now, it has avoided putting a precise number on them. It said such deep reductions were the only way to preserve Germany's future as a manufacturing site.
"We continue to incur significant losses on cars exported from Germany to the USA," chief executive Bernd Pischetsrieder said.
"In order to ensure a secure long-term future for the group, we must act rapidly and determinedly to eliminate the problems that we face," he said.
The depth of the cuts -- nearly 6 percent of its work force -- impressed investors, as did the earnings. Shares of Volkswagen rose nearly 10 percent here to close at a three-year high.
"If they do everything they announced today, they are on a sound basis to be solidly profitable by 2009," said Ferdinand Dudenhoeffer, director of the Center for Automotive Research in Gelsenkirchen.
By Dudenhoeffer's calculation, Volkswagen needs to reduce its payroll by at least 15,000 to be competitive with the industry's most efficient carmakers.
Volkswagen, he said, should be able to reach its goal, thanks partly to a deal with the union that lets workers retire at age 58.
At Volkswagen, Wolfgang Bernhard, the company's No. 2 executive, is leading the effort to turn around the flagship VW brand. He came from Chrysler, where he and his former boss, Dieter Zetsche, eliminated 26,000 jobs as part of an overhaul that salvaged that company. Zetsche is now the chief executive, and chief cost-cutter, at DaimlerChrysler.
A crucial part of Bernhard's strategy is rebuilding Volkswagen's presence in the US, where its market share has dwindled to 1.5 percent. It plans to introduce several new models there.
Volkswagen has extracted concessions from its German workers by threatening to assemble new models outside the country. It recently agreed to build a new sport utility vehicle at its flagship plant in Wolfsburg rather than in Portugal -- but only after winning a 20 percent reduction in wages.
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