Volkswagen Is Planning More Than $4 Billion in Cuts

October 20, 2016, 4:24 PM UTC
A worker shines the grill of a Volkswagen car displayed on media day at the Paris auto show, in Paris
A worker shines the grill of a Volkswagen car displayed on media day at the Paris auto show, in Paris, France, September 30, 2016. REUTERS/Benoit Tessier - RTSQ7Z0
Photograph by Benoit Tessier — Reuters

Volkswagen is targeting about 3.7 billion euros ($4.1 billion) of cost cuts at its core car brand by 2021 as it wrestles with labor leaders over a turnaround plan, sources said.

Europe’s biggest carmaker needs to come up with savings at high-cost operations in Germany to help fund a shift to electric cars and self-driving vehicles while facing billions of euros in costs from its emissions scandal.

About 3 billion euros of the cutbacks would affect operations in Germany where VW is based and has some of its biggest plants, two sources familiar with the negotiations between labor and management told Reuters on Thursday.

The targeted savings would follow a 5 billion euro efficiency program announced by Volkswagen (VW) in 2014, of which about 2.5 billion euros has already been realized, the sources said.

The cuts would help VW to lift the operating margin at its troubled core brand to 4 percent by 2020 from an expected 2 percent this year, the sources said.

That’s less than a previous 6 percent target and below profitability benchmarks at rivals Renault, Peugeot , Ford and General Motors.

VW declined to comment. The works council did not return calls seeking comment.

Talks between brand management and labor leaders are faltering at the moment with investment pledges and cost savings proving stumbling blocks, the sources said.

Raising the pressure on management ahead of a staff gathering at the company’s Wolfsburg headquarters on Thursday, labor bosses warned that the pact — viewed by analysts as key to VW’s longer-term future — could still fail if executives withhold commitments to fixed targets and quotas for products, output and investment.