Handelsblatt Exclusive

Volkswagen to Slash Costs Amid Scandal

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Going down the drain. Volkswagen tries to save the pennies.
  • Why it matters

    Why it matters

    The new savings and plans for a revamp of VW’s management style are important steps to help the world’s largest automaker recover from its biggest ever scandal.

  • Facts

    Facts

    • VW plans to slash some €3 billion from its components bill to help cover the cost of the scandal that some say could reach €40 billion.
    • The company said on Tuesday that it will develop electric engines for passenger cars.
    • VW Chief Executive Matthias Müller told 1,000 VW executives on Thursday to encourage staff to jettison the company’s hierarchical management culture.
  • Audio

    Audio

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Volkswagen chief executive Matthias Müller plans to squeeze components suppliers and cut wages, marketing and sponsoring expenses to cover the looming costs of its emissions-rigging scandal, Handelsblatt has learned.

The fallout from the scandal could cost VW as much as €40 billion, or $45 billion. The world’s largest automaker was already looking to trim costs but is now redoubling its efforts to weed out spending.

Company sources said VW wants to cut costs at suppliers by €3 billion. One large components maker confirmed VW was demanding efficiency gains.

On Tuesday morning, the automaker said it would cut investments by €1 billion per year, and accelerate its cost-cutting program. It also said it would focus on electric cars for its passenger and light commercial vehicles and overhaul diesel engines and install greener exhaust emissions systems.

Herbert Diess, who is the chief executive of the Volkswagen brand within the wider Wolkswagen Group said the group was “creating room for forward-looking technologies by speeding up the efficiency program.”

Mr. Müller, the former chief executive of Porsche, was appointed chief executive of the Volkswagen Group to succeed Martin Winterkorn, who resigned last month days after VW admitted it had installed the illegal software in 11 million vehicles to cheat emissions tests.

He knows that savings alone won’t restore VW’s fortunes and that the carmaker needs to undergo nothing less than a management revolution.

Traditionally, many decisions at VW are taken by a small group.

Their orders are handed down and contradiction or criticism is not tolerated. Mr. Winterkorn has been blamed for a culture of fear that some say paved the way for the scandal. Mr. Müller this week will introduce a new, more decentralised management system that encourages constructive criticism.

A lot of luxuries that VW afforded itself in better times can go too: opulent sports sponsorship and glamorous auto shows are all up for review.

On Thursday, the VW boss addressed some 1,000 managers and told them that he wanted everyone at VW — not just a handful of managers — to share a sense of responsibility for the company’s fortunes. For many executives, this new approach may come as something of a culture shock.

Handelsblatt has learned that the savings program will target not just suppliers and temporary workers but also the 115,000 core workers on permanent VW contracts. Those employees will likely have to accept a decline in their profit-related bonus which last year amounted to €5,900 per worker.

VW has ample liquidity and if it were to sell some of the family silver, like the truck makers MAN and Scania, it could raise a total of up to €60 billion. But for the time being, divestments are taboo and savings are the order of the day. The €10 billion in cutbacks already planned before the scandal won’t be enough. More economies will be imposed, especially at the core VW brand. VW brand chief Herbert Diess has been ordered to slash purchasing prices. But the cuts will go even deeper than that. The model range will be thinned out and the investment budget will be trimmed. The dividend will also likely to be cut.

A lot of luxuries that VW afforded itself in better times can go too: opulent sports sponsorship and glamorous auto shows are all up for review. Such costs will be closely scrutinised because VW wants to avoid laying off workers. The fleet of corporate jets, which have also been available to executives below the management board level, will also be examined. With costs amounting to €5,000 per hour of flight, other companies have already curbed their use of private jets considerably.

 

Markus Fasse is a Handelsblatt editor specialized in the aviation and automobile industry. Martin Murphy specializes in the automotive, defence and steel industries. Christian Schnell is an editor with Handelsblatt, covering the stock market and German auto industry. To contact the authors: fasse@handelsblatt.com, murphy@handelsblatt.com and schnell@handelsblatt.com 

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