Winterkorn Cites “Urgent” Need to Cut VW Costs

Volkswagen AG CEO Martin Winterkorn tells employees the company intends to achieve annual cost reductions of €5 billion by 2018 to meet an "urgent" short-term need to gain efficiency and hike profits.

VW's group operating profit margin was 5.9% last year. But the VW brand's margin shrank from 4% to 2.9% and dropped to only 1.8% in the first quarter of 2014.

Last autumn Chief Financial Officer Hans Dieter Poetsch announced a profit margin target of 6% for the VW brand by 2018.

Winterkorn told VW managers earlier this month that some of the company's challenges are "homemade problems." He promised "sometimes painful" actions, declaring the VW brand should stop making models that aren't as profitable as competing vehicles.

The company has predicted it could cut production costs 20% or more by shifting about 4 million units of annual output to its new "MQB" flexible chassis architecture. But redesigning vehicles to do so has proved expensive.

Bernd Osterloh, who heads VW Group's works council and has a seat on the supervisory board, is urging management to correct its own mistakes. Reuters cites a memo by Osterloh that calls for better production scheduling and more efficient sales operations overseas.