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VW said to target $4B savings in turnaround plan


October 20, 2016 09:17 CET
UPDATED: Oct. 20 12:35 CET – adds planned savings target

BERLIN – Volkswagen Group is targeting about 3.7 billion euros ($4.1 billion) of cost cuts at its core VW brand by 2021 as it wrestles with labor leaders over a turnaround plan, sources said.

The targeted savings would be in addition to a 5-billion-euro efficiency program announced by VW in 2014, of which about 2.5 billion euros have already been realized, two people familiar with the negotiations between labor and management told Reuters.

About 3 billion euros of cost cuts would affect VW’s operations in Germany, the sources said.

Talks between brand management and labor leaders over a so-called future pact are faltering with investment pledges and cost savings proving stumbling blocks, the sources said.

VW declined comment. The works council did not return calls seeking comment.

Labor leaders have told workers that they are not close to an agreement with management on cost cuts and strategy for the VW brand. “A collapse of the future pact continues to be possible because we are still lacking essential commitments from the company,” VW works council said in a letter distributed to German staff today.

Labor bosses want management to agree to fixed targets and quotas for products, output and investment as the two sides wrestle over a turnaround plan for the VW brand.

Talks between labor and management over the so-called future pact will resume later today, after labor leaders have briefed workers at a staff gathering at the automaker’s headquarters in Wolfsburg, Germany.

Both sides agree that the VW marque must “reinvent itself” to be competitive in the long run, the company’s management and works council said on Wednesday in a joint internal memo distributed to employees.

Reviving profit at VW Group’s largest division is a cornerstone of the automaker’s effort to emerge from its diesel-emissions scandal while planning billions of euros in investments for electric cars with new digital features.

The company embarked on a push in 2014 to lift earnings at the VW brand by 5 billion euros and boost the return on sales to 6 percent from about 2 percent now. The company was forced to abandon the initial time frame when the diesel-emissions test-cheating scandal erupted a year ago.

VW’s works council on Wednesday denied a report that the parties had reached an agreement to save as much as 6 billion euros in costs by 2025.

Bloomberg contributed to this report

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