Monday, September 05, 2005

Pischetsrieder: Reduction in labour cost unavoidable

Text from Volkswagen AG.
Works meeting in Wolfsburg – Economic conditions remain difficult.

Wolfsburg, 05 September 2005 - Despite rising sales, the Volkswagen Group still has overcapacity. “In view of global competitive pressure, we need far-reaching cost reductions in all areas. That also applies to labour cost,” said the Chairman of the Board of Management of Volkswagen AG, Dr. Bernd Pischetsrieder, at a works meeting in Wolfsburg on Monday. He stated that the Board of Management had put together a package of measures to that end.

Pischetsrieder said the Group had succeeded in increasing sales this year thanks to new models. The company was, however, still operating in a difficult economic environment and in stagnating, in some cases even declining, markets. The international automobile industry was suffering from considerable overcapacity. As a result, competitive pressure would intensify further.

“We have made quite substantial headway with our ForMotion program and the Product Workshops. Nevertheless, we cannot avoid reducing labour cost, either by lowering costs per employee or by employing fewer people, or by a combination of both,” said Pischetsrieder. What was important was the ability to serve growth markets profitably from German plants. That was not only a question of labour cost, but this factor must at least be competitive in Germany, and thus in Wolfsburg.

There was no doubt that the Wolfsburg plant needed the new compact SUV. However, the vehicle must be economically realizable. Under the plant agreement, though, precisely this economic viability was not possible at the present time. This was the background to the recommendation by the Product Strategy Committee to build the SUV in Portugal.

Pischetsrieder said that negotiations to secure the jobs for building the Touareg’s smaller sibling in Wolfsburg were nevertheless continuing. This was an important decision for the site. However, it would not alter the fact that Volkswagen had surplus manpower of the order of several thousand employees at its German sites, in particular Wolfsburg.

This surplus must be cut back within the framework of the present collective agreement. Pischetsrieder cited an extension of the partial retirement program as one specific measure, although that on its own would not be sufficient. In addition, Volkswagen would be offering individual employees termination packages. “These measures apply to employees in all areas, including senior management.”

Despite this decision, Pischetsrieder confirmed the present profit forecast. The ForMotion target of 3.1 billion Euro would be reached and there would be a year-on-year improvement in both operating profit after special items and profit before tax in 2005.

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