July 15, 2014 at 8:31 am

Volkswagen targets $6.8B in savings to lift profitability

Volkswagen AG, Europe’s largest carmaker, plans to cut costs and boost productivity at its namesake brand by 5 billion euros ($6.8 billion) by 2017 to lift sagging profitability.

Efficiency gains have failed to keep pace with rising labor costs, Chief Executive Officer Martin Winterkorn said in an internal presentation to company managers obtained by Bloomberg News. The company is seeking the savings by lowering purchasing expenses, reducing complexity and cutting factory expenses.

“We must now take action that is clear, effective and sometimes painful,” Winterkorn said in the briefing. “Let’s be honest: we have a lot of catching up to do with our core competitors in terms of productivity.”

VW employs nearly 575,000 people, more than any other carmaker. The Wolfsburg, Germany-based manufacturer has sought to offset its heavy wage bill by sharing parts and development costs among its slate of 12 brands.

With competition in Europe intense and expenses to roll out new models like the revamped Passat, the Volkswagen brand has struggled to keep pace. The unit’s operating margin dropped to 1.8 percent of sales in the first quarter from 2.4 percent a year ago. The company’s target for its biggest nameplate is a 6 percent margin.