Volkswagen AG, the largest automaker in Europe and the second biggest in the world, has asked its namesake passenger car brand to deliver cost savings of 5 billion euros annually from 2017.
The company has targeted the savings plan as a needed measure to ensure the troubled core division would cease to lower its earnings margins as the profit is eroded by slowing emerging-markets demand and growing development and technology expenses. The cost-savings threshold is also needed to fit in the group’s larger strategy of delivering a profit that could rival its larger peer – Japan’s Toyota Motor, the globe’s biggest carmaker by sales. Chief Executive Martin Winterkorn recently announced that so far the savings measures – which among others include axing unprofitable models and reducing the acquisitions of expensive equipment – could be factored in and lift the core brand’s 2015 results by “well over 1 billion” euros, which is around 20 percent of the overall threshold.
The Wolfsburg-based company has made slow progress on the delivery of the promised savings, with the CEO announcing that only about half the size of the 5 billion euros cost reductions can be made through the already identified measures and plans. According to works council chief Bernd Osterloh comments made last month, the wake up call issued by VW’s senior management has had little impact on the brand’s particular interests and if cost-cutting measures are implemented with a unified view then VW could lower the costs at its namesake division by “substantially more” than 5 billion euros.