Thursday, July 14, 2005

VW plans billions in cuts to halt slide

Senior directors urge firm to accept personnel chief's resignation amid a bribery inquiry of two executives.

By Stephen Graham / Associated Press

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BERLIN -- Volkswagen AG's woes deepened Wednesday as company officials said the automaker needed billions of dollars in cost cuts to halt a slide toward the red and recommended the departure of its personnel chief amid a corruption scandal.

The German carmaker said it was preparing measures such as squeezing suppliers and sharing more components to lift net earnings by 4 billion euros ($4.9 billion) by 2008, including a pretax improvement of 7 billion euros ($8.6 billion) at its main VW brand.

Intense competition that is hurting all carmakers in the United States, a weak dollar and sluggish demand in Europe last year hammered profits at Wolfsburg-based VW.

VW, which also makes Skoda and Bentley cars, has responded with a cost-cutting drive that began to bear fruit in the first quarter of this year. But managers said Wednesday the program had to be stepped up sharply.

"We are facing, in the near term, even more trouble," said Wolfgang Bernhard, a former DaimlerChrysler AG executive drafted in May to head the reorganization. "We have to look at all the possibilities to face the challenge in front of us."

Investors appeared unconvinced that Bernhard will succeed, sending VW shares down 3.6 percent to 39.38 euros ($48.20). It was the worst performer in Germany's blue-chip DAX index.

In a conference call with analysts and reporters, group finance chief Hans Dieter Poetsch said he needed to "weatherproof" the company, whose profitability has been sliding since 2001, against ever-tighter emissions regulations, rising energy costs and weak markets.

Bernhard said "no sacred cows" would be spared in the search for improvements, and said engineers already identified ways to cut $1,000 from the cost of producing its flagship Golf.

He also criticized a string of new models launched in recent months as lacking "innovations" and said quality standards had also slipped. The next new models are due in 2008.

Earlier Wednesday, senior directors recommended that VW accept the resignation of its personnel chief, Peter Hartz, whose name has been closely associated with Chancellor Gerhard Schroeder's efforts to reform the economy.

Hartz offered to quit on Friday amid fallout from news that German prosecutors are investigating bribery allegations against two personnel executives. One of them reportedly took money from Volkswagen suppliers.