VW Details Cost-Cutting Moves

Volkswagen AG aims to reduce annual costs by €5 billion by 2017. On Thursday CEO Martin Winterkorn described some of the steps the company will take to achieve that goal.

He tells reporters the company has identified cost-cutting measures that represent half the target. He anticipates more than €1 billion in saving this year.

Some of the reductions will come through the companywide efficiency drive the VW brand launched last July. Winterkorn says the group's other brands are taking similar steps to optimize operations.

He predicts improvements in brand earnings as more the company's models moves to its flexible modular transverse and modular longitudinal chassis architectures. He notes that only 15% of VW brand vehicles have made the transition compared with more than 30% for Skoda. Operating return on sales for the VW unit fell last year to 2.5% from 2.9%, while results for Skoda jumped to 7% from 5.1%.

More savings will result from pruning the company's model lineup of slow-selling vehicles and options. Winterkorn cites the two-door Polo as an example, noting the car competes in a rapidly shrinking market segment. Cancelling such programs, he says, will generate triple-digit millions in avoided components and launch costs. Declares Winterkorn, "We know what we have to do."

He says VW is examining its build combinations and will eliminate any that fail to reach an installation rate of at least 5%. He adds that the company is reviewing the way it packages options for all models worldwide.