Volkswagen Announces Job Cuts

Just one month ago, VW Chairman Bernd Pitschetsrieder warned that the future of car-making in Germany was at risk if companies like VW could not reduce labor costs which analysts estimate to be at least 20 percent higher than in the rest of the industry.

On Monday, he told staff in Wolfsburg that he was not planning any outright layoffs, but insisted that thousands of jobs had to go.

According to German weekly news magazine Der Spiegel, the company makes some 6 million vehicles a year, but is only able to sell about 5 million of that output.

Pitschetsrieder said VW had "several thousand" more staff than it needed in Germany, in particular at its flagship production plant in Wolfsburg.

"Despite rising sales, the company still has significant over-capacity and will therefore have to increase its efforts to shed staff," he said.

The company now hopes that cutting several thousand jobs at its six German production sites over the next three years will help it regain a competitive footing on the cut-throat international market.

Commitments honored

The world's fourth-largest carmaker, Volkswagen currently employs some 103,000 workers across Germany. Its current collective agreement precludes layoffs until the year 2011, and the CEO assured employees on Monday that the measures would therefore be achieved without breaking commitments made to the workforce in the accord late last year.

"It is planned to extend eligibility for early retirement to employees born in 1951, with a further extension to cover employees born in 1952 if required. Furthermore individual employees will be offered termination packages," said Pitschetsrieder. The cutbacks apply to employees in all areas, he said, including senior managers.

Mid-term savings

Investors welcomed the announcement, with German investment bank Dresdner Kleinwort Wasserstein estimating the cuts could lead to some 560 million euros ($698 million) in mid-term savings.

Shares in Volkswagen closed up 3 percent at 43.69 euros on Monday, making it the top gainer in the benchmark DAX blue chip index. The shares gathered momentum after impressive sales statistics for its main earnings contributor, Audi, as well as an 11 percent rise in new car registrations last month in VW's German market.